Who is the customer, and how is the customer doing?
Those are two pretty simple questions, yet I think that when we get away from the on-again-off-again nature of both the Fed and the president -- the two largest variables out there -- you have to ask those questions to figure out the health of an enterprise you may be analyzing for investment.
In the case of Salesforce.com (CRM) , which reported last night, the answer is pretty darned well. Customers are placing huge orders with Salesforce, so they can get digitized. That's how you get an astounding 34% year-over-year cash flow growth, an excellent metric to use as a pure way to determine the real rate of growth of an enterprise. That's how you get 25% growth in the Americas, 27% growth in Asia Pacific and an incredible 32% growth in Europe, the Middle East and Africa. And you thought Europe was in recession? How about China issues? None. Salesforce does almost no business in China.
Now contrast that with Skyworks Solutions (SWKS) which pre-announced a huge shortfall last night through no fault of its own. Huawei was, emphasis on WAS, a 12% customer. I always loved the mosaic of customers that Skyworks had -- no one dominant customer. That said, when you wake up one day and a 12% customer is put on a U.S. blacklist, you are certainly going to be a lot less well off then you were the day before, through no fault of your own.
I think it could get worse before it gets better for Skyworks, which has a lot of Apple (AAPL) business. Tim Cook last night on a nightly news program talked about how he doesn't think that China is going to target the company.
I am much more worried about our country targeting Apple because of our arbitrary and whimsical president, who seems to dislike any company that has much business overseas -- particularly with China. He's becoming a one man wrecking crew for those who provide aid and comfort to our trading enemy.
That makes Skyworks -- and any other company doing a ton of business in China -- suspect. I think that we are about to see multiple companies that do business in China say that China's become weaker. Of course, weaker is a lot better than "black-listed," but it isn't going to help any conglomerate with an Asia-Pacific number dominated by China. Right now only Estee Lauder (EL) , of all the companies I follow, seems to be immune from the downturn despite its heavy China exposure. The party doesn't mind make-up, I guess.
Which brings us back to the customer. Marc Benioff talked last night about how some of his customers are concerned about tariffs, but, if anything, that forces those customers to step up spending to protect their flanks. On its conference call, Marc cited a source that said only 20% of the enterprises out there are digitized, a staggering figure given how much we talk about how companies are being forced to adopt the cloud and more-sophisticated customer relations management just to keep up with their own sector.
Remember, though, as Marc reminds us, all companies have to identify who is the customer. It's pretty easy for Salesforce: it's everyone who needs to have all functions, internal and external, be digitized.
It's pretty easy for Skyworks, too: it's all companies that need telco equipment for cellphones.
But Marc was careful to point out that the reason Washington is so angry at big tech is because some big tech companies have forgotten who the real customer is. Marc isolated Facebook (FB) early on -- far earlier than just about everyone else -- as a culprit that mistreated the real customer, the user, and sold the user out.
Marc didn't mention Amazon (AMZN) and Alphabet (GOOGL) , but I think that Facebook's cavalier way of selling out the ostensibly real customer for the advertisers is causing Washington to ask the same questions about Apple, Amazon and Alphabet. Does Apple make too much money off the App store, exacting monopoly profits from its customers? Does Alphabet know too much about its customers and profits from it? Does Amazon compete against its customers.
These are all big issues that are haunting these big tech companies.
They don't haunt Salesforce -- or any of the cloud kings for that matter.
And that's why we are paying up for some of these and selling the others. Who is the customer? After the disappointment that is Skyworks and the investigations starting in Washington, maybe that's more important right now than how's the customer doing.