With a King's Ransom in Cash, Why Still No Buying Spree in the Tech Space?

Even in the midst of the economic meltdown, consider these mega-billion-dollar cash hoards of big tech companies:

Microsoft (MSFT): $20.7 billion

Cisco (CSCO): $29.5 billion

Apple (AAPL): $25.6 billion

Intel (INTC): $11.8 billion

Oracle (ORCL): $10.6 billion

Hewlett-Packard (HPQ): $10.2 billion

Google (GOOG): $15.9 billion

Yahoo (YHOO): $3.5 billion

Of this moneybags list, Apple and Google have zero debt, with the others not having much at all to speak of. Better still, all typically generate a whole lot of cash flow quarterly, even in the downturn.

And since very few tech companies like to hand over dividends or buy back much stock–kind of a minor sacrilege in the space since it means they have no innovative new ideas to fund–BoomTown asked a big exec at one of these companies when the buying spree of both public and private companies might begin.

“Like everyone else, we are waiting for the bottom,” said the exec. “So who knows?”

Said another: “No one wants to buy when prices could just keep going down. The trick is to buy before the really great deals out there collapse.”

And, even as some tasty targets are suffering and might need a lifeline, none of them want to necessarily sell out at all-time lows either.

“We will start eating our toner and paper first,” joked one start-up exec, whose company is increasingly strapped for cash, even after a number of cost-cutting moves.

Interestingly, the only standout in the buying game has been Oracle, which has been in bargain-hunting mode, making 10 acquisitions for about $750 million in the last year, according to an article in The Wall Street Journal today.

While this amount is small potatoes to Oracle, which has typically been known for doing huge merger and acquisition deals, it is still some activity in a decidedly inactive space.

Oracle has especially focused on private firms, as the private-equity investing and venture capital has dried up and IPOs are an impossible dream.

And while another well-known M&A addict, Cisco, has recently issued $4 billion in debt to fund more purchases, and Microsoft execs have noted recently that it is a buyer’s market, it seems Oracle CEO Larry Ellison is the only one currently putting his big money where his big mouth is.

So, when do you think tech companies should commence gobbling too?

Original article

Comments

[Neurotic Nomad:]

Do you live in a vacuum? Have you read a newspaper in the last year? Do you really believe a "spree" of any kind is anything less than ill advised?

The answer to the question in your title is self evident.

Feb 18 04:38 AM

[Alan Brochs...:]

1) A lot of the "cash" is spoken for in terms of liabilities, such as debt, deferred revenue, etc. Cash is easy to spot, being at the top of the balance sheet, but take a look down or to the right sometime and you will see what I am talking about.

2) These companies tend to repurchase their own stock - probably a safer but not necessarily bright idea in this economy.

Feb 18 08:27 AM

[ArtfulDodger:]

Personally, I'd rather see them innovate with new products rather than go on buying sprees.

Feb 18 09:53 AM

[constantnormal:]

I suspect they will start buying when revenues at the companies they would like to acquire turn higher -- which is going to be some time from now. Nobody is going to plunk down good cash (the most prized asset in deflationary times) for something that is going to be cheaper next month.

Feb 18 10:50 AM

[M-P:]

Most of the companies mentioned have traditionally sat on a lot of cash. Given the current economy, they may be able to get some incredible deals on the auction block or some sort of asset sale. The more margin of safety - the better. Also, as others have pointed out, why buy now when the price is likely to go down. I could also see some of the firms buying some net operating losses (NOLs) to springboard their future profits. Software is a tough game - fast moving and first copy costs are significant.

Feb 18 12:35 PM

[Stephen Ros...:]

Steve Jobs in October 2008 said: "...we have almost $25 billion safely in the bank and zero debt. This provides us tremendous stability and the ability to invest our way through this downturn. This is what we did during the last downturn. We [increased] R&D investments and created some of our best new products and businesses, like the Apple retail stores for one."
Apple is usually not a buyer of companies. Rather, it makes its own way through innovation. And it does it on a relatively low budget compared to other tech companies.
In any case, a fool and his money are quickly parted. I don't think that Apple is a fool. What better time to sit on your cash.

Feb 18 01:29 PM

[User 175563:]

Two things Kara:

1) Apple actually has $28.2 billion in the bank. This money is another source of revenue in this tough economy. So if Apple has T-bills, this hoard might be contributing another $2 billion to the bottom line.

2) If we get another bis swoosh down in the market, there's gonna be a house cleaning, taking a lot of supply off the market. Perfect time to scoop up IP, talent and properties. With zero debt and a huge wad, Apple has nothing but time on their side.

Feb 18 02:21 PM

[Catalina588:]

Sorry, Zach. There's no treasury security that pays 2/28.8 in interest (7.09%). Not even the 30-year bond. But the interest is still a few hundred million. Nothing to sneer at when so many in the tech community are starving for cash.

Feb 18 03:51 PM

[neutrino23:]

Last year Apple bought P.A. Semi. That probably was a good indicator of their thinking. They didn't buy them simply to get bigger or because they were cheap they bought them because they wanted the talent and IP.

Going forward I'd expect more of the same. They'll buy a company if they identify it as owning some IP that they think will help them accelerate the main business.

Certainly price would be important if they were to look at trying to ingest Adobe. However, if they want to acquire a smaller company owning critical IP what difference does it make if the price is $50M or $100M if the end result is they can increase sales by 10% (about $4B/year now)?

Feb 20 02:14 AM

[Mad Hedge F...:]

Here is a nice early spring mustard seed. Intel (INTC) announced they plan to invest $7 billion in new factories in Arizona, New Mexico, and Oregon, hiring 7,000 workers. The company in the past has said that high costs, over regulation, and unreliable power supplies will prevent it from ever again building a major manufacturing facility in California. The plants will build low energy chips using the next generation 32 nanometer technology. At least this round is not going to China. Only the big cap tech companies have the cash to pull this off.

Feb 21 09:04 AM