Fearing a reprise of the 2000 catastrophe which wrecked hundreds of tech companies, big firms in the sector are hording cash. The only trouble with the idea is that the firms putting money onto their balance sheets don’t need it. Those corporations which failed eight years ago were predominantly small and had raised too little in their IPOs.
According to The Wall Street Journal “As of late last month, the technology sector — which already had been heavy on cash in the past few years — held nearly $232 billion in cash and cash equivalents, up more than 6% from nearly $218 billion a year earlier, according to Standard & Poor’s.”
Part of the movement includes EBay (EBAY), EMC (EMC), Apple (AAPL), Google (GOOG),and Cisco (CSCO). But, all of these companies make money, most over $1 billion in operating income per annum, some several times that.
One of the problems with a recession is the herd thinking which creeps into the market, causing all companies and financial institutions to think more like one another. In a robust economy planning becomes divergent and open to more risk. That is what drives productivity and innovation into the boom and bust cycle.
Cash for the sake of cash is mindless and robs investors of value. If large tech companies have vaults full of bullion they should use it to create some “shareholder value”, a phrase as repugnant as it is overused.
Unless a company can make a case that it plans to make acquisitions, it should send money back to shareholder. Share buy-backs are one way, although they don’t seem to do much. Special dividends are another. Microsoft (MSFT) did that a few years ago and its made Bill Gates very rich.
Cash does no one any good when it sits in mattresses.
Douglas A. McIntyre