Trend Radar: Emerging Markets

On Thursday morning, as I was writing the Hewlett-Packard (HPQ) piece, it struck me how big an impact Emerging Markets are having on companies right now.

HP has done well globally, a strong reason for it to be unfazed by the slowing U.S. economy. In 2007, 67% of its total revenue was from outside the U.S. In the fourth quarter, Asia-Pacific grew by 20%, EMEA by 19% and Americas was up by 10%. BRIC countries grew 37% y-o-y in Q4 and accounted for 9% of total revenue.

Wow!

We’re also seeing interesting companies gaining critical mass in the Emerging Markets. I have covered Mercado Libre (MELI) from Latin America, Naukri [BOM: NAUKRI] from India, and others. All are good examples of these markets becoming real markets, not just offshore manufacturing, development, or back-office facilities.

This is where I find Cisco’s (CSCO) emerging market weakness a matter of concern.

In 2008, there is likely to be a great deal more concept arbitrage in all of the emerging markets, especially those flushed with venture capital like India and China.

Comments

[frs]

Your bias is showing again. And your analysis of CSCO is sometimes contrary to logical thinking. For example, your concern ('I don't like') that CSCO's increasing headcount is a negative. Geez dude, look at the data will you - last quarter added 2.3% to their headcount and added 19% to Y-over-Y earnings. Wow - a few more salespeople to fuel accelerating growth. With those numbers, I'd suggest CSCO add 2.3% to their headcount every quarter!!!! Concern about emerging market growth rates? Only a moron would pick on the numbers based on that. Focus on the big stuff fella - $25B in cash, monopolistic levels of market share, operating margins that most compnaies would love to have, and generating $600M in free cash EVERY MONTH. Talk about a solid company - what are you thinking?

[In the money]

I'm long on CSCO, and it has taken a beating lately, but don't forget that we keep hearing that businesses will keep spending on technology. CSCO equipment is not like buying a building -- you don't need credit to obtain it. That puts it away from this other mess we are in.