You didn't have to sit there and take it. That's what we learned from Cisco (CSCO) and the trade wars that now are raging between the United States and China. It's a positive, constructive story and big company execs would do well to heed it if they want to see their stocks go higher like that of Cisco today.
We are hearing from so many companies about how they are "monitoring" the situation between the two countries and will take actions to mitigate the costs of doing business in China. They tell us that they have been able to handle the initial wave of 10% tariffs but the move to 25% on existing tariffs is a problem for both the customer and the company that will hurt for certain. Oh, and if the last $300 billion goes out at 25%? Then look out, it's not in the numbers and who knows how badly they will be hurt. So, again, they "monitor."
Lots of monitoring.
Except it seems like it is hall monitoring and not more persuasive or powerful than that.
Cisco did not take that tack. Six months ago Cisco adopted a "hope for the best prepare for the worst" strategy where the company simultaneously pleaded its case but shifted sourcing with alacrity to all over the globe. That's how CEO Chuck Robbins could say on the conference call: "...and so last week when we saw the indication that the tariffs were going to move to 25% on Friday morning the teams kicked in and we actually have executed completely on everything that we need to do to deal with the tariffs."
Yep, they executed completely on everything, because Robbins chose not to be surprised by President Trump's resolve to get companies to make things better and cheaper without tariffs. Robbins didn't bellyache that he can't get out of China and therefore numbers have to come down. Robbins saw the Chinese buying less and less from Cisco - don't worry it is only 3% of their business - and started going around the globe finding alternate places to make things.
Robbins went on to say: "Operationally all that we needed to do is now behind us and we see very minimal impact at this point based on all the great work the teams have done and it is absolutely baked into our guide going forward."
Robbins understood that it was imperative not to ignore what the president was saying. He understood that the president is trying to get the Chinese to come to the table desperate to keep business that is flowing out to other countries in a visible fashion. He understood that the president is playing for keeps and isn't buying into the "they are playing a 500 year game and we aren't able to think anywhere near like that so we will lose." He didn't say "they are playing chess and we are playing checkers."
He said that the shareholders deserve a company that's ahead of the curve not behind it and doesn't have to cut numbers off of supply chain issues.
CEOs would do well to heed what Robbins did. The company had a good quarter and gave in-line guidance. I think that could have been a recipe for a falling stock. But the actions taken to prevent the Chinese hit made the difference. You may say that I am being too glib, that companies like Macy's (M) and Ralph Lauren (RL) both of which took a China hit, couldn't help it, China's too big. I come back and say if it isn't too big for Cisco to move then it isn't too big for anyone to get this right. You just have to believe that the president's not giving in and you have to take action to prevent estimates cuts from any Chinese sourcing. That's what will happen going forward and if the action is taken, the shareholders will be rewarded.