Former Cisco CEO John Chambers joins Yahoo Finance Live to discuss the tech sector, the startup environment in China, new technologies, Elon Musk's Twitter takeover, and his predictions for Big Tech.
BRIAN SOZZI: As we approach the last month of the year, our next guest is looking ahead to 2023 with his top predictions, covering everything from the Metaverse to China to globalization. Former Cisco CEO John Chambers is back in the Yahoo Finance house. John, always great to get some time with you here. Look, all morning long, we have been talking about tech sector layoffs. They just continue to ratchet up. Now I loved one of your predictions. You're calling next year, the year of the great recommit in the jobs market. Walk us through that.
JOHN CHAMBERS: All right. So in the sequence you raised it, you look at the job market. It's been the Great Recession, a great resignation for the last five or six years. And all the companies have had voluntary attrition running at a much higher level than they want. I think as the market tightens, both the companies are learning they've got to interface with their employees more effectively, and the employees are learning that it's nice to pop out every two years. But when you job hop in a slow economic time, the first person to get laid off is the most recent hire.
To the question about what is occurring in areas like China, I recall something controversial. Brian, you remember on your show and others, over two years ago, I reiterated my view about my startups not doing business in China. It was a win-lose environment where China was winning, and the US was losing.
And you know I was very close to Jiang Zemin, who, unfortunately, passed away today. He brought much of that start-up win-win mentality back into China, a version of Chinese capitalism, if you will. And now you see a version where their leaders are taking it the opposite way.
So a controversial call for this next year is China's growth slows dramatically in the tech sector. They've taken the strongest startup ecosystem in the world, and they've self-inflicted a lot of issues on it. And I think the US will actually, for the first time in a decade, gain on China in terms of the direction. So those would be two thoughts out of the 10 thoughts that I might want to share with you today.
BRAD SMITH: Among the return to office and even kind of hybrid work environment, John, we had seen so much of the pendulum staying on the employee side. And some of the opportunities were there to be able to job hop to a different opening. But now that even as we're looking across some of the job openings, labor turnover data, it seems like those opportunities are starting to wane, even as there are hiring freezes and some firings that have moved forward. And so with that, has the pendulum swung back to the employer?
JOHN CHAMBERS: No, Brad, I don't think it has. I think the layoffs that you're reading about are largely high tech. The manufacturing layoffs have been relatively smaller. You saw a little bit of a tick-up in terms of the jobs data that came out today. I think we have issues in terms of the long-term job market here. This is why I'm such a believer in constructive immigration, especially high skilled immigration.
And many of the American companies with the Semiconductor Act, et cetera, that's going on, want to locate their manufacturing in the US, but they don't have the availability of the skilled workforce. So this is one you can't turn one down. You've got to change several at the same time.
That hits another point, Brad, that you're raising indirectly. There's going to be a movement toward deglobalization. That'll put a little bit of pressure on inflation. Globalization occurred for, as you all know, several decades. And it allowed a lot of countries and companies to be very successful. The reverse is going to happen here. You can argue is it good or bad. It's inevitable. And you will see literally globalization begin to impact it.
To the indirect area where you're taking me on the stock market and direction, your prior guest was a great example. I just look at the headlines today. Citi was saying rolling recessions throughout 2023. Bank of America said the stock market could go down another 24% in 2023. You had people that I've admired tremendously, like Jamie Dimon, several months ago, saying 2023 is most likely, it will be very rocky. You had Jeff Bezos weigh in, saying we're headed for a problem.
And my initial reaction is, I hate shorting the market. I don't short individual stocks, but shorting the market. But I thought about it very hard. And then in early October, I said, what's wrong with this scenario? And what's wrong is everybody was in complete agreement. And when everybody is in complete agreement, the market often goes the other way. So I did not weigh in. And I think that, obviously, ended up being a good decision between the stock market on the 1st of October and today.
Now the question for next year, I think the vast majority of really smart money is saying it's going to be a very serious economic time, and recession is almost a given. I'm more in the middle. I think it could go either way. I think it will be a year of the stock picker. And if you think about it, for the investors listening to program today, you had to be almost missing in action not to have made money over the last 12 years, as long as you had a reasonable portfolio and didn't get carried away on some of your extreme one-off bets.
In terms of the VC world, it's the same thing. If you're in venture capital, you had a reasonable portfolio, you should get a return of 3 or 4x. The really great ones got a return of 10x type of approach. So for VCs, this is why you see early stage VC money still continuing to grow, where later stage VC money, much like IPOs, are backing off of the direction.
Now, the indirect part of your question is, are new technologies like cryptocurrency, self-driving cars, the Metaverse, are they probably overhyped still? In my opinion, yes. You saw today the European Central Bank state that they felt Bitcoin was-- on its way to irrelevance. And so I think we tend to get too excited about certain technologies. And I think you're going to see some resets on that.
Brad, the question you always give me, we talked back several years ago about the big six technology companies and how long would they stay in power. And I think everybody felt it was inevitable that all six would stay very strong, unbeatable, unchallengeable. Their balance sheet looks great, et cetera.
I think you're going to see cracks in that. It would not surprise me at the end of this decade, two or three of those top six fall from grace. And I know that's controversial, but they've been in an elite position for two decades. That's about as long as it lasts in terms of technology leadership.
JULIE HYMAN: Well, some of them are already heading that way. I think you could argue that with Meta, certainly, John. I want to get back a little bit to what you were saying about VCs and about Silicon Valley because four of those 12 years, when everything's on fire, those guys were viewed as brilliant, right? You're talking about Andreessen Horowitz. You're talking about Sequoia, et cetera.
Sort of these mysterious geniuses, right? They're looking a lot less genius after the likes of FTX and the money that they poured into other crypto investments as well. What do you think they get wrong at moments like that? How do they make those mistakes? And how can regular investors sort of avoid making those mistakes, too? Because, certainly, a lot of individuals put a lot of money into crypto and such.
JOHN CHAMBERS: So I want to first give an answer that aligns very much, Julie, with the question you asked, which is I think all of us, during good times, myself included, get a little bit overconfident that our win rate is going to be dramatically better than the market. And I think that's something all of us have to constantly be aware of.
But understand really great VCs-- and you've named two great firms, and I'd add to that probably five or six other of the VC players. But Sequoia and Andreessen Horowitz, their portfolios, in time, will be, I think, very effective. I'd be more concerned if they're overly exposed to China in terms of the market than I would be they have a couple of misses.
You want to know what percentage of their portfolios were in these misses, and I think it will also be a good learning curve for all of us that you don't want to get too overconfident. You've got to do the basics on your analysis of companies. Do they have a board of directors? Do they really have a check and balance system in place? Are their numbers pretty much on trend to what they said?
So I think it's a little bit of a reset in the VC community. I think you are going to see a contraction in the community, not an expansion. I think you will see too many VC companies. I got into the market overall. And candidly, I think this is a healthy balance, just like the multiple rebalance that is occurring.
From my own perspective, I'm fortunate enough to be in 20 companies, many of them-- a couple of them still in stealth, many of them very early stage. But I've got 11 unicorns out of the 20 at the present time. And most of them will hold that unicorn value, but they focused not just on growth, they focused on sustained differentiation, free cash flow, and profitability.
So I think this is a good reset, both on the multiples and back to the basics. And even the best makes them, looking backwards, some mistakes they wish they had over. But that's part of risk taking. If you haven't got a risk taking gene, you can't be in venture capital.
JULIE HYMAN: No risk, no reward, I guess. John, just quick follow on that, did you happen to invest in FTX?
JOHN CHAMBERS: No, I don't invest in anything I don't understand well. I had a chance to be in exchanges on cryptocurrency. I had a chance to back several of the companies. When you see people like Jamie Dimon saying I'm not sure this is for real, I don't invest in things I don't understand.
I try to invest, Julie, very much on a business market change combined with a new technology with a CEO that has a chance to be the one or two player in that too new market. So I'm all over artificial intelligence with two major companies, an ASAP, if you will, a uniform in customer care, a sprinkler in terms of the marketing side of the house, and then very much invested in cybersecurity.
The only things really predictable for the next year and the next five years is cybersecurity is going to be one of the top three issues on corporations' boards. And you will see that be an area that I think will experience very good growth. So if I were in your audience today and betting-- not on the next month or two months. Nobody knows, to be very candid.
But where do you want to be one, three, and five years out? I'd bet heavy on AI. I'd bet heavily on cybersecurity. I would hesitate personally about areas you don't understand, the cryptocurrency being a key example, the Metaverse being a key example, and repeating. Self-driving cars, I think it may have got ahead of itself on how quickly that's going to come to market.
BRIAN SOZZI: John, last night ahead of this segment, I was reconnecting with the book that you wrote a couple of years ago-- and then you so, of course, so kindly signed for me-- "Connecting the Dots, Lessons for Leadership in a Startup World." From a pure leadership perspective what do you make of what Elon Musk is doing at Twitter of that playbook? Have you seen anything like this before in your career?
JOHN CHAMBERS: You know, I'm always very respectful of my peers. And I think most of my time, my peers were gentle on me when I made missteps. And while taking a company from 70 million in sales to 48 billion was a lot of fun and most valuable company of all times at one point, I think we've got to be very careful as a tech industry. We've got to be careful that we're not overconfident and arrogant.
And people-- the brand doesn't just affect a company. The brand affects how we're viewed in Washington, et cetera. And if we get too overconfident, et cetera, and we begin to move with market disruption that perhaps some of the political leaders view as inappropriate for the average American, then you'll see corrections occur, like antitrust that we talked about on your show over a period of time.
Normally, I'd pass on that question, Brian, but I wouldn't tell you I am. This time, I'm going to answer directly. I think we've got to be very careful during periods of contraction about what we do. And if you were kind enough to read the book, Brian, you know that almost everything he did on the acquisition of Twitter, I would have recommended a playbook that would have been dramatically different.
And if you do layoffs, it's how you do it with class. That's how you treat the employees right. It's how you overcommunicate both to the employees who stay and the ones that leave, to your own shareholders in terms of the direction, to the media, et cetera. So I think he missed an opportunity here. I think part of their wounds will now be self-inflicted.
However, I would not bet against this guy. If you watch what he did with Tesla, ups and downs, you watch what he's doing with SpaceX, et cetera, his track record is very good. But it's probably one of those if you were modeling what not to do in an acquisition and modeling what not to do in terms of bringing your expenses back in line with your projected revenues. It probably had a lot of room for improvement.
JULIE HYMAN: Yeah, I think they'll have to coin that the Musk caveat or something in business books-- business school books one day, John. Because you always have to say, you know, you can't bet against him at the end, even if he's doing everything exactly the opposite of the way anyone else would.
JOHN CHAMBERS: Yeah, but it's so important tech is viewed for tech as good for all of America and all the world. And we've got to behave as leaders in that with that in mind. And it used to be 90% of Americans view tech was good for them and very positive on the tech companies. When we do things they feel is unfair or not treating people in the way that they feel is appropriate, it affects all of tech's brand.
Now, having said that, digital world is coming. Every company from automotive to healthcare to finance is going to be a digital company. Tech's future is going to be very bright. The market clearly got ahead of itself. I think there's a reset going on. And I'm very bullish on tech, looking out one, three, and five years, and that's where my attention span is.
JULIE HYMAN: John, it is always so awesome to catch up with you. Thank you so much, former Cisco CEO John Chambers and guru on all things big tech and, well, with his predictions for next year. Thanks so much, John.
JULIE HYMAN: Julie, it was a pleasure. Brian, great to see you again. Brad, good to see you for the first time, my friend.
BRIAN SOZZI: You're the man, John. Happy holidays.
JULIE HYMAN: Thank you.
JOHN CHAMBERS: Happy holidays, everyone.