Skip to Content

CEO Daily: Friday, 27th January

Good morning.

It’s hard to know what to make of White House spokesman Sean Spicer telling reporters yesterday that the administration is considering a 20 percent tax on Mexican imports to pay for construction of the wall on the Mexican border. It’s such an unambiguously bad idea – bad for American consumers, who would end up paying the tax; bad for American companies, whose supply lines would be disrupted; bad for the global trade order, which is essential to U.S. growth; and bad for American workers, who would likely lose jobs in the ensuing economic chaos – that it can’t be taken seriously. If you question that, read Fortune’s analysis here.

Perhaps it was a tactic, intended to soften up Mexico for the negotiations that will likely follow the cancellation of President Trump’s meeting with President Pena Nieto? Or perhaps it was just a bad mistake? If anyone has a better theory, please let me know. I’m all ears.

Meanwhile, Tesla CEO Elon Musk, explaining why he joined the President’s Strategic and Policy Forum, told Gizmodo that “the more voices of reason the President hears, the better… Are you aware of a single case where Trump bowed to criticism or media attacks?”

Meanwhile, Mexico’s richest man, Carlos Slim, has called a rare press conference for today. Stay tuned and enjoy the weekend.

News below.

Alan Murray

Top News

There’s No Pleasing Some People for Alphabet

Google parent Alphabet posted a thumping 22% rise in core revenue last year, as growth in the final quarter hit 36% its highest rate in four years. That is some achievement for a company of Google’s size. However, its stock retreated from an all-time high because of a one-off tax adjustment. Some commentators also noted concern about the costs of its battle with Amazon and Microsoft for dominance of the Cloud, where it is largely playing catch-up. Capital expenditure rose by nearly a billion dollars to $3.1 billion.

Microsoft’s Azure Continues Its Surge

By contrast, Microsoft shares rose 1% in after-hours trading after it said revenue from its Cloud-hosting service Azure, its great hope for the future, rose 93% in the quarter. Sales from the personal computing business continued to fall, by 5%, although the signs of the PC market bottoming out after four years of declines appear to be increasing. Intel, which is still heavily dependent on PC-based revenue, reported a 10% rise in quarterly revenue, beating Wall Street estimates thanks to a 4.3% rise in its traditional PC business.  Fortune

Another Wet Job in Retail

This week’s high-profile casualty in the traditional retail sector is teen fashion chain Wet Seal, which is reportedly planning to close 173 of its stores after failing to turn itself around sustainably two years after filing for Chapter 11 bankruptcy protection. Wet Seal thus goes the way of American Apparel, The Limited, Aéropostale and Pacific Sunwear. Meanwhile, Sears shares tumbled 9.2% to a new all-time after Fitch Ratings warned that it, too, may have to restructure under bankruptcy protection. Fitch was unimpressed by the recent progress in raising cash through the $900 million sale of Craftsman to Stanley Black & Decker, saying Sears could burn through twice as much this year. Fortune

Et tu, Starbucks?

Even Starbucks is suffering from the slowdown in retail (and in the restaurant business, more specifically.) Its fourth-quarter report missed revenue forecasts in every major region worldwide. With online commerce eating into footfall at malls, many of the company’s stores are losing traffic. Outgoing CEO Howard Schultz nonetheless repeated his forecast of a rise in comparable sales of somewhere between 4%-6% this year, with a stronger second half when it hopes its investment in a better mobile experience will start to bear fruit. Fortune


Around the Water Cooler

Fear and Loathing in the Driverless Car

Tesla Motors filed suit against Sterling Anderson, a former manager in its Autopilot development team and Chris Urmson, formerly head of Google’s self-driving project. It accused Anderson of stealing confidential information for a new venture that he was starting with Urmson, and also of trying to persuade at least a dozen Tesla engineers to depart with him. Anderson was terminated Jan. 4, a week before Tesla hired Apple’s Chris Lattner to head the Autopilot project. Tesla said in its filing that it understood that people sometimes leave to set up on their, but called Anderson’s behavior “extreme and inexcusable.” The new Anderson/Urmson venture, Aurora Innovation LLC, said the suit was “meritless.”  Fortune

Alibaba’s Ant Grabs MoneyGram

Alibaba is making inroads into the U.S.. Its FinTech subsidiary Ant Financial said it’s buying MoneyGram for around $880 million, around 12% more than its market valuation earlier this week. The deal will be subject to approval from the Committee on Foreign Investment in the United States, and will be a test of the new administration’s opennenss to Chinese investment in the country’s financial infrastructure. It will also, by extension, indicate the actual value of high-profile relationships between the new President and individual businessmen. Alibaba’s Jack Ma was a conspicuous visitor to Trump Tower during the transition, and was warmly praised by Donald Trump after the meeting. Fortune

• Watch Out for the Stock Option Plan

Companies are more likely to issue stock options to staff when they’re committing fraud, according to researchers at Arizona State University, Rutgers and Columbia Business School. The researchers analyzed 663 cases of companies sued for false accounting and found that they issued on average 14% more stock options than honest companies during the period they were accused of misrepresentation. The tactic is a strong and apparently effective deterrent to whistleblowers, who have to balance financial loss on their options against anything they have to gain from coming clean. Fortune

Toshiba Puts Westinghouse Future in Doubt

Toshiba may be about to put its Westinghouse nuclear business up for grabs. The Japanese company said the division was now under review after triggering another massive write-down (reported to be in the region of $6 billion by Japanese media). Toshiba also confirmed expectations that it will sell a stake (of under 20%, so it claimed) in its memory chip business to plug the hole in its balance sheet. The firm is rushing to complete the sale by the end of the financial year in March as failure to do so will likely mean that shareholder equity – just $3 billion in the wake of the accounting scandal – would be wiped out by the charge. Reuters

Summaries by Geoffrey Smith;