In the past, the government was a steady and reliable customer for many company’s products, even when the broader economy went into the tank, as the government can simply spend money they don’t have unlike other companies. However times are changing these days and the government’s finances are in tatters. Recent results from NetApp (NTAP) are Exhibit A for this relatively new phenomenon.
The company reported results that disappointed Wall Street across the board, and the stock got slammed. I pored through all the analyst reports and it was like a broken record in terms of what they were saying. Here is a snippet from Susquehanna:
“The U.S. Public Sector (12% of revenue in the quarter) increased 3% Y/Y; however, NetApp highlighted that while this sector struggled early in the quarter it witnessed a sharp pullback in orders in the second half of July.”
Speaks Volumes
I think this is a very important development and speaks to how bad things are with our federal government. Of course, ask any of the millions of public sector employees that have been given pink slips recently and they could have told you this long before NTAP did.
All those years of recklessness are finally starting to come home to roost, and it is unfortunate our leaders have been so irresponsible for so long. This whole debt ceiling debacle was the kind of thing that struck shame and embarrassment down the spines of almost anybody who followed it.
So what does this mean to you as an investor? I would avoid companies that rely on the government for the bulk of their revenues. I am willing to bet that more companies like NTAP will come up short and also blame it on the government’s pullback in orders. I think even defense companies could struggle as all expenditures will come under scrutiny, even the once sacred defense spending budget. Make sure the company’s customers are healthy before you buy a stock. It can make all the difference.
Government No Longer A Reliable Customer is an article from: 
