Silence is no defense for Euro tech executives

November 24, 2008

— Eric Auchard is a Reuters columnist. The opinions expressed are his own —


A man keys in a message onto a mobile phone in a Milan bar March 3, 2006. REUTERS/Daniele LA Monaca

When on trial, any attorney will tell you, the best defense is to stick with what you know and speculate about nothing.

That’s the situation virtually all of Europe’s biggest technology, media and telecoms executives found themselves in when making presentations at Morgan Stanley’s annual technology, media and telecoms conference, the season’s biggest industry gathering, with 75 speakers over three days ended Friday.

Investors generally consider company executives and the stocks they represent to be guilty until proven innocent. But even those that cry out and say they did nothing wrong, and that business looks good, sell off.

The right to silence has drastic consequences. This historic protection of the accused carries the consequence for executives of listed companies of seeing their stocks dumped by shareholders at the slightest hint of uncertainty or vagueness.

“Lack of visibility” or “uncharted waters” — two favorite CEO excuses — are not defenses, just reasons to exit the stock.

“It is very difficult to give clear guidance for fiscal year (2009),” said Wincor Nixdorf Chief Financial Officer Jurgen Wunram. “We are not too pessimistic but, of course, we are not too optimistic.”

Wunram predicted flat sales at his automated teller machine company in the fiscal year ending in September 2009, but said he could not absolutely assure investors that growth in net sales or cash flows might not turn negative. The stock is 5 percent lower since Wednesday, when he made the comments.

Almost all of Europe’s major telecom equipment makers, mobile carriers and TV broadcasters are unwilling to quantify how bad 2009 might be. Meanwhile, a handful of top advertisers expressed hope for flat to slight growth in the global advertising market, despite forecasts by many analysts for a decline next year.

“If we get recession for six to eight quarters, of course that would affect us,” said TeliaSonera Chief Executive Lars Nyberg. “It must. But I’m not totally sure how.”

BT Group Chief Executive Ian Livingston said: “Any CEO that stands up here and says a recession could have no effect on us is a good one to run away from.”

The main exceptions were companies that through foresight or happenstance were not exposed to broad swathes of consumer, corporate or communications carrier markets but rather operate in thriving niches.

Satellite operator Eutelsat’s Chief Executive Giuliano Berretta said that because his business was constrained by the number of satellites it can launch, and pent up demand by broadcasters: “Eutelsat never suffers from overcapacity.”

“The crisis will not affect our system. The main part of our business is pay-TV. It’s the last thing (broadcasters) are going to cut,” Berretta said. “We are not going to see a decrease in the market.” Many customers’ contracts last a decade or more.

Mike Lynch, chief executive of regulatory compliance software maker Autonomy told the audience of top fund managers gathered at a seaside hotel that business couldn’t be better.

“Our business is regulatory-driven, and so customers don’t have a lot of choice,” Lynch bragged. “Most companies are not compliant with most of the regulations they are supposed to be compliant with.”

One measure of his confidence: Ninety percent of contracts in Autonomy’s pipeline are regulatory deals, up from 60 percent earlier in the year and 5 percent in 2002, the last technology market downturn.

It didn’t matter. The stock closed down more than 5 percent since he spoke here on Thursday.
Several executives made no attempt to disguise their despair.

“If there has been a time when the world seems to be coming to an end and our operations are treading water, this is it,” said Santiago Fernandez Valbuena, chief financial officer of Telefonica.

“People are talking about the worst crisis since the 30s, and you need to take that very seriously,” said Ericsson Chief Financial Officer Hans Vestberg.

The executive of the Swedish telecom gear maker, a perennial restructurer for much of this decade, said the company was on track with one goal. Cost cuts.

“We will exceed the program that we started at the beginning of the year,” he said.

John Pluthero, executive chairman of Cable & Wireless’s international business, opened his presentation by complaining that nothing he could say in meetings with investors this week could impress them in the current economic climate.

“We’ve just had the last one-on-one of the day, where notwithstanding the fact that we beat our half-year numbers handsomely, upped our guidance for the year and increased our dividend by 13 percent, the opening line from our shareholder was: ‘Yours is a shite business, isn’t it?'”

— At the time of publication, Eric Auchard owned no shares directly in any of the securities mentioned in this article. He may be an owner indirectly as an investor in various funds. —

One comment

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I actually think that “I don’t know” is a fair sort of statement for an executive to make. I am more troubled by flase statements. But I feel that portfolio managers want concrete values to plug into their investment models. Investors love nice-looking financial reports. If you take any intermediate level of accounting, it should become evident that financial statements can be engineered to say almost anything. I actually think that we need some major rethinking in the area of equity valuations. I also believe that company executives should be doing everything possible to support the company’s interest – short of giving false information. Investors have to take some responsibility. In many cases unfortunately we should let them lose their savings for bad decisions. Alternatively we can regulate companies out of existence.

Posted by Don | Report as abusive