It is the high-octane caffeine of Wall Street, the financial news media, Internet tip sheets and corporate America: quarterly earnings forecasts. It is the hot, hesitant tango between U.S. companies and large investment houses.
The earnings game is played to varying degrees in the capital-intensive wireless industry, with its federal mandates, time-consuming research and development, and its vulnerability to sometimes unpredictable mass-market whims. For those and other reasons, it can be toxic.
Some firms-new and old economy alike-have abandoned self-generated earnings guidance. Others are headed in the same direction, but not necessarily because they share America’s top business lobbyist’s disdain for the culture of short-term thinking.
“At a minimum, our data suggests that the current regulatory environment has heightened sensitivity to the possible consequences of releasing information that is misleading, advantageous to a particular group that gets it first, or simply wrong,” said Greenwich Associates consultant John Colon in a report earlier this year. “While that might not be a bad outcome from an enforcement perspective, it seems counterproductive if the regulatory environment is indeed driving down the frequency of forward-looking communications and forecasting.”
Thomas Donahue, president of the U.S. Chamber of Commerce, recently took his rant against the earnings game and the short-term mindset he claims it cultivates straight to Wall Street.
“The rules have now been changed to favor a culture of immediate financial gratification without regard to long-term costs. We’ve created an environment where a company’s long-term value and health are all too easily sacrificed at the altar of meaningless short-term performance. We focus on a company’s numbers and ignore its business-and that philosophy poses a significant threat to our future competitiveness,” said Donahue. “While many U.S. CEOs are worried about the next three months, our global competitors are making long-term investments in their companies and in their economies. This is particularly true of emerging competitors such as China and India.”
The reference to China and India is particularly true and troublesome, for it portends potentially caustic consequences for the future of U.S. high-tech competitiveness in the global arena.
“The dot-bomb era should have taught us that core business attributes-like having customers and a sound strategy-are much more important than what the financial statements say from quarter to quarter,” said Donahue.
