NEW YORK - A theme is emerging from the flood of recent corporate earnings reports: Cost cuts are boosting profits. Investors are cheering, but they shouldn't. Even in these tough times, more CEOs should be talking about how they are seeking out investments, developing new technologies and making acquisitions.
That's what will set their companies up for a stronger future.
Intel Corp.'s former CEO Gordon Moore had it right when he said years ago that "you can't save your way out of a recession." He meant that even in the toughest times, companies have to spend money on new ideas.
"Customers don't come out of recessions spending the way they did before," said Chunka Mui, who has studied how companies can capitalize on opportunities during crises at his Chicago-based consulting firm, The Devil's Advocate Group. "They demand something different."
Surprisingly few companies are following Moore's advice of innovating during recessions.Companies in the Standard & Poor's 500 index cut 25 percent on average from their capital expenditures expenses and 5 percent from research and development costs between the end of the third quarter last year and the second quarter this year, according to S&P.
Many have been crippled by the pullback in consumer and business spending as well as tight credit conditions, which is making it harder for companies to get loans to fund their operations. That's driven some to hoard cash and make drastic cost cuts. They're slashing jobs and wages and closing stores and factories.
"A downturn like this should force people's hand," he said.At Intel, Moore's philosophy has been used consistently since he led the chipmaker starting in the late 1970s. Over the years, the Santa Clara, Calif., company's top executives continue to openly discuss the company's strategy of investing heavily in downturns.
I expect your company has cut spending and limited its innovation process to save the bottom line correct? Is it prepared for the upturn?
This is an AP reprint
