Why Are Rich Companies Laying Off Poor Workers?

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NokiaWith an economic recovery like this, who needs a recession?

Several major corporations have been announcing layoffs in recent weeks, despite their fattening coffers.

BlackBerry maker Research in Motion (RIMM) revealed this week that it will cut 2,000 jobs. Last week it was Cisco (CSCO) eliminating 6,500 posts, including 2,100 employees that had opted for early retirement. Campbell Soup (CPB) and handset maker Nokia (NOK) have also gone public in recent months with their pink slips showing.

Consumers don't applaud layoffs. Investors who may initially cheer cost-cutting moves eventually realize the gravity of the situation. The American Management Association reports that 88% of businesses going through layoffs report declining employee morale, so it's not as if those who survive the cut aren't busy firing off copies of their resumes elsewhere.

However, the real shocker here is that many of these companies executing layoffs aren't exactly in dire financial straits.

What's With the Pink Slips? We've Got Billions in the Bank!

Analysts following these four companies expect profitability to continue in the coming quarters. With the exception of leveraged soup maker Campbell, the other three companies have billions of cash on their balance sheets:
  • Nokia has billions in cash and no long-term debt.
  • RIM closed out its latest quarter with nearly $2.9 billion in cash and investments but also with no long-term debt on its balance sheet.
  • Cisco is saddled with $16.2 billion in long-term debt, but it's one of the richest companies on the planet with $43.4 billion in cash and equivalents.
Why are companies that clearly have the money to keep their employees as stress-free and productive as possible endangering that stability with sharp job cuts in the middle of this alleged recovery? The answer -- at least in Cisco's case -- may have something to do with the illusion of its cash-rich balance sheet.

Your Money's No Good Here

Cisco has a problem that is all too familiar with many multinational giants based in the United States. The tech bellwether can't bring back profits earned overseas without facing steep taxable consequences. Most of Cisco's $43.4 billion in cash is waiting to be repatriated.

Like a minor eyeing a juicy trust fund, the money's there -- but it can't be touched.

There is an estimated $1 trillion in profits locked up this way, and legislation was introduced in May to help bring some of that money back home. The government has to decide whether it wants to allow companies to repatriate overseas cash at a nominal tax rate 5.25%, well below the top corporate tax rate of 35%. The bill would penalize participating companies that stray from historical hiring standards after repatriating profits, an important provision that should sway legislators that normally wouldn't vote for a corporate tax break.

Cisco CEO John Chambers argued that he could raise his company's headcount by 10% if he were able to bring home as much as $30 billion in overseas profits, but that was before last week's sobering dismissals. Do the layoffs validate the pressing need for the repatriation tax holiday or did Cisco just sink the bill's chances?

Either way, this doesn't explain the moves at RIM and Nokia: RIM is Canadian; Nokia hails from Finland.

Maybe It's the Shoes

There's another explanation for the deluge of pink sheets lately. Could it be that these companies are simply aware of their fading relevance?

Cisco hacked away at most of its consumer-facing businesses earlier this year, nixing the Flip camcorder line along the way. Nokia and RIM continue to lose market share to iPhones and Android-fueled smartphones. See, it's all about shrinking BlackBerry pie slices and Nokia phone fizz-outs.

Cisco posted uninspiring net sales growth of 5% in its latest quarter, and analysts expect that rate to contract over the next two periods. Wall Street is braced for year-over-year declines at RIM through its next two quarters. These two companies were tech darlings a couple of years ago, but they failed to keep up with the market.

An optimist would argue that this is the time to increase payroll, or at the very least invest in the reinvention process. It's a valid point, but influencing corporate America is never as easy as getting Wonka's candy factory to raise the bar with the everlasting gobstopper.

RIM, Nokia, and Cisco can't buy their way back to their "before" pictures, even if they clearly have the financial means. Their job cuts are indicative of disruptive, and probably irreversible, trends in their flagship businesses. The best that consumers -- and job seekers -- can hope for is that the disruptors are hiring as fast, if not faster, than the disrupted are letting folks go.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Cisco Systems.

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Catherine Holmes

not really your business why they are laying off...When you own a company you can decide who to keep, who to hire and who to lay off....Obama Care is toxic..large businesses are not going to swallow the additional cost of obama care..therefore they will analyse the situation, find out how many employees have to be laid off to cover the cost for the remaining employees..and presto-chango..Obama care is costing them NOTHING...and BTW look for the 25 hour week to become standard with new hires...Companies dont have to pay healthcare expenses on any worker averaging less than 30 hours per week...

November 12 2012 at 1:02 PM Report abuse rate up rate down Reply
Bennie Clark

A ROMNEY BUSINESS PRATICE, HELP THE RICH, NOT CONCERNED ABOUT THE POOR.. UNFIT TO LEAD.

March 20 2012 at 10:16 AM Report abuse rate up rate down Reply
Dennis

I believe this started in college. Students were taught that lower level workers were also lower level people and therefore do not deserve to be working there.I saw this happen first hand at a big business I worked for,and they had plenty of money. There was NO reason for any layoffs. We were told straight out we did not belong there. One of these upper class people told me he was taught this in school.Then many of you out there blame unions. If not for unions nobody would have sick days,holidays,paid vacations etc etc. This country is going backwards and it better change or most of us will be on line at the nearest soup kitchen.

March 20 2012 at 3:56 AM Report abuse rate up rate down Reply
Dennis

I believe this started in college. Students were taught that lower level workers were also lower level people and therefore do not deserve to be working there.I saw this happen first hand at a big business I worked for,and they had plenty of money. There was NO reason for any layoffs. We were told straight out we did not belong there. One of these upper class people told me he was taught this in school.Then many of you out there blame unions. If not for unions nobody would have sick days,holidays,paid vacations etc etc. This country is going backwards and it better change or most of us will be on line at the nearest soup kitchen.

March 20 2012 at 3:26 AM Report abuse rate up rate down Reply
Edward G. Hoeger

Oprah knows why rich big businesses fire poor little employees it is a business decision period.

March 19 2012 at 11:33 PM Report abuse rate up rate down Reply
Stephen

The resason large companies and banks (Citi 2500 employess have a already gotten or expect to get pink slips) is becuse of the large ash infusions to Republican super -pac's and the big boneses given to the Chief Esec. $1.6 mill.
Citi Bank) I mean to keep Romney from having to tap his offsore bank accounts to pay his team which he hasn't becuse he does not want to bet on a race he expects to only be an also ran. The large company's must cut there payrolls. Which adds to the unemployment numbers. Though in some/many instances they are just exchanging employees who have time and experiance and a bigger paycheck for unexperianced employees who will work for almost free. But then do not know what they are doing. And the simple rule you can not sell your products to people who have no money. So the more peole who are un/underemployed becuse you let them go the more people who do not have the excess money to buy your products! And simple fact that business and the Republicans cannot understand.

March 19 2012 at 4:05 PM Report abuse rate up rate down Reply
Superfelo

"Cisco has a problem that is all too familiar with many multinational giants based in the United States. The tech bellwether can't bring back profits earned overseas without facing steep taxable consequences."
Fer sure. It is always the Taxman's fault. Multinational Giants that became so because of America's mighty power
and riches refuse to contribute to it because giving back is onerous. Laying off employees helps the bottomline,
and they have more money to stash, instead of giving it to the putative company owners: The Stockholers. Memba them. Sure, it is always the Taxman's fault and those job-killing regulations. Sure, sure, sure.

March 19 2012 at 2:48 PM Report abuse rate up rate down Reply
Superfelo

"Cisco has a problem that is all too familiar with many multinational giants based in the United States. The tech bellwether can't bring back profits earned overseas without facing steep taxable consequences."
Fer sure. It is always the Taxman's fault. Multinational Giants that became so because of America's mighty power
and riches refuse to contribute to it because giving back is onerous. Laying off employees helps the bottomline,
and they have more money to stash, instead of giving it to the putative company owners: The Stockholers. Memba them. Sure, it is always the Taxman's fault and those job-killing regulations. Sure, sure, sure.

March 19 2012 at 2:48 PM Report abuse rate up rate down Reply
FromTheChrysalis

Throughout the Gnostic tractates, which are the only truthful account of the real words of Jesus, he often said that there are typically very few businessmen in heaven. Every day we are reminded why he said this. I for one believe most of this behavior is traceable to the corruption instilled in these people by their professors in college.

Nobody teaches ethics anymore!

March 19 2012 at 2:36 PM Report abuse rate up rate down Reply
maduck11111

It's only the beginning my friends this is not one of those "and this too shall come to pass" If people do not take the blinders off we are doomed in 2014, there are so many things in place that will make America fall like Dominos.

March 19 2012 at 1:44 PM Report abuse rate up rate down Reply