News of job cuts and slower demands are no longer news in the past several months. The words recession, downturn, turmoil, have become day-to-day buzz words even for kids.
But I cannot help but being outraged by the way some companies manage, and even take brutal advantage, the economic downturn. Below is a series of personal analysis on various corporations who, I think, are either piggy-backing the “economic downturn” bruhaha to cut jobs, or are just downright corporate criminals.
My first highlight is on Pfizer, the world’s largest pharmaceutical company.
Pharmaceutical giant Pfizer announced 8,000 job cuts last week. I immediately thought, “Whaaaattt??? The company isn’t affected by the downturn!”
To begin with, Pfizer’s total revenue in 2008 was $48.4 billion, right on its target of between $47 to 49 billion – a target announced by the company in Jan 2008. There is no downturn whatsoever, because its total revenue in 2007 and 2006 is around the same mark (see their revenue in 2006, 2007, both around the US$48.4 billion figure) .
Secondly, pharmaceutical is one of the most crisis-free industries known to men, because medicine is a matter of necessity, not option. It is estimated to continue enjoying a single-digit growth (a rarity in a downturn like this!) this year because even though the demand will slow down in developed markets, it will continue to increase in emerging markets like India, China, and Latin America (see the analysis here).
If the cut jobs based on “estimated slowing down of demands in the future”, let’s take a better look at it. To begin with, this company will only lose its patent on Lipitor – world’s best-selling cholesterol-lowering drug and Pfizer’s largest income contributor, in 2011. Instead of cutting down across the board (they are cutting down on sales forces, researchers, scientists, etc – see here for more info), they need to speed up and re-focus research and development effort for newer strands of drugs that can replace Lipitor as Pfizer’s cash-cow
The company spokesman once explained,” Restructuring is an attempt to cut costs and generate earnings growth despite generic competition for many of Pfizer’s major medicines.”
Ok … so let’s talk about cutting costs and generate earnings growth. Firstly, the global demand for medicine is not estimated to go down … so the “generate earnings growth” argument is out the door. Furthermore, what many companies mean by “generate earnings growth” is, simply, that the stockholders want more bang for the buck. They want more earnings for each share they own. They want more dividend, because the revenue in the last two years have stayed stagnant. Many, if not most, of these stockholders do not contribute anything to making Pfizer the great company that it is today. They are just in there for the money, in when the shares are cheap. And they will sell their shares at a profit.
And since the value of their Pfizer stocks have gone down from more than $22 per share in March 2008 to just around $15 today, I can see that they will be nervous and wanting the company to do something so their “dear investment” can at least retain its value by the end of the year, so they can earn their dividends.
The rumors about further job cut in Pfizer (see here that since 2004 they have laid off almost 25,000 workers) started circulating since November 2008, and the stock market reacted positively to this rumors because its share were traded for just around $12 in late October 2008 and then went up to $17-18 after the rumors started going around. It indicated that the stockholders WANT the job cuts.
In the most part, stockholders of a publicly-listed company don’t care about the sustainability of the company or its workers. They only care about their financial investment and its return. And Pfizer is sacrificing their dear scientists to succumb to the demands of money-hungry shareholders. That’s what it is ..
Secondly, with regards to cutting costs, … hmmmm…… at the same time as announcing the layoff, the company also announced it will acquire Wyeth for $68 billion. BILLION, not million! While takeover, mergers and consolidation of businesses are inevitable facts during a downturn, the timing of the takeover announcement is a total public relations disaster! It immediately creates an image of … “Ok … let’s save a few hundred million bucks of personnel cost each year so we can pay off the $68 BILLION Wyeth takeover. This way, we’ll be debt-free in … 212 years!!”
While businesspeople and financial advisers understand that the job cuts and the Wyeth takeover are two totally different matters, let’s face it … most people in the world ARE NOT financial advisers and business analysts. For all we know, Pfizer appeared on the headlines, one for “trying to cut cost to prepare for gloomier days” and the other one “wanting to dump a ridiculous amount of money”
In conclusion, I believe that Pfizer’s job cuts are not caused by the economic downturn. This is part of their long-term plan to re-focus their business and rescuing the value of its shares … after all, they’ve been cutting almost 25,000 jobs since 2004 so this is just “another step” in their restructuring handbook (note that the stock market reacted POSITIVELY to the job cut, see here for the details). But the timing of the announcement is organized as such as to cushion the blow. By announcing the job cuts together with Home Depot, Microsoft, Caterpillar, Nexter and other big corporations, the focus of the discussion would be on the economic downturn, rather than the fact that Pfizer isn’t actually affected by it in a real sense.