Cash and short-term securities at four of the world's biggest high-tech companies have surged sharply over the last year, boosting their combined market valuation and offering them ammunition for strategic acquisitions, R&D, and product development programs.
Apple Inc. (Nasdaq: AAPL), Cisco Systems Inc. (Nasdaq: CSCO), Google (Nasdaq: GOOG), and Microsoft Corp. (Nasdaq: MSFT) together had approximately $149.1 billion in cash, short- and long-term securities, and other liquid assets (net of long-term debts) at the end of their latest quarters. This is up 30 percent from $115 billion in the comparable periods of 2009 and dwarfs the foreign exchange reserves of many small countries.
By far, Apple is the King of the Hill in my compilation of the Top 4 cash-rich companies. The huge success of Apple's iPhone wireless handset equipment, iPod digital music players, and the iPad, the latest offering in the tablet PC category, combined with continued market share gain by Mac computers, has turned the company into a giant cash geyser. In the September quarter, Apple reported a total of $53.3 billion in cash, short- and long-term marketable securities, and other assets, up a whopping 42 percent, or $15.7 billion, from the same period in 2009.
If Apple continues to penetrate deeper into the consumer electronic market with strong products like the iPhone, the company could close the ongoing fiscal year, ending September 2011, with more than $60 billion in liquid and semi-liquid assets, putting it well ahead of any rivals and giving it the resources to make acquisitions, bankroll extensive research and development operations in new markets, and create opportunities that its closest rivals can only dream about.
Analyst Brian Marshall of Gleacher & Co. estimated Apple's net cash position at the end of its latest quarter at $51 billion and says the company's "cash balance represents about 18% of the market capitalization." To cap it, Apple has zero debt on its balance sheet, putting it in a distinct class alongside Google, the company that is now shaping up as its archrival in the wireless handset market.
In second place on my list of the high-tech cash kings is Google, the browser and online advertising giant that is quietly branching into other technology areas and testing next-generation applications like driverless vehicle equipment. Google, which also recently reported September-quarter results, had $33.4 billion in net cash and marketable securities, slightly edging out Microsoft's $32 billion in net cash (after taking out long-term debt of $4.9 billion). In fourth place was Cisco, which closed its July 31 fiscal quarter with $42.7 billion in cash and marketable securities but posted $12.2 billion in long-term debts for a net cash position of $30.5 billion.
Even good news comes with its own wrinkles, however. The giant cash pile at these four companies also represents a major challenge: what to do with a truckload of liquid assets at a time interest rates worldwide are at their lowest levels in years. Some have suggested strategic purchases of rivals, technologies, patents, and expansionary spending, but even these options can create, not only value-generating opportunities, but significant challenges. Valuations have risen sharply on Wall Street in the last year, and finding the right acquisition targets, integrating them, and squeezing out cost-savings may be tricky.
Perhaps that's why the four companies reviewed here have kept a large chunk of their cash in dry powder form, investing in short-term and long-term marketable securities, meaning treasury bonds, high-value corporate bonds, and other fairly liquid assets. Google, for instance, had $22 billion, or more than two-thirds of its liquid resources, in short-term investments. Apple had $14 billion in short-term investments and $25.4 billion in long-term investments, a clear indication the company is not going to be tapping a majority of the funds for acquisitions or any other quick-hit transactions.
Of course, these companies could return some of the investments to shareholders in the form of large dividend payments or share buyback. That is not Apple's way; the company does not pay dividends or buy back shares. Microsoft, on the other hand, might be more inclined to raise dividends, but even this is questionable.
With Apple pulling away from other tech leaders, and Microsoft intending to pour money into the fight for dominance in the operating systems market for wireless handsets, a large portion of cash at these companies will be on their balance sheets for some time.
What do you think cash-rich tech companies should do with their money?