Tech firms build cash to weather recession (EMC, EBAY)
Posted by: admin in Industry NewsFiled under: Forecasts, Deals, Industry, eBay (EBAY), EMC Corp (EMC)
Tech companies suffered in the big internet explosion in 2000. Part of the problem was that many of them did not have sufficient cash reserves to make it through the storm. They’re concerned that the 2008 recession will be deja vu all over again.
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 almost $218 billion a year earlier, according to Standard & Poor’s.”
The move is mindless and totally unnecessary. Ebay (NASDAQ: EBAY) now has $3.6 billion and EMC (NYSE: EMC) has $4.5 billion according to the S&P numbers. The idea of building assets on the balance sheet makes no sense because both companies make money and have forecast to make money for the rest of the year. EMC had operating income of over $1.7 billion last year.
Wall Street does not like to see “unused” cash sitting around making 2.5% interest. Companies that don’t have announced M&A programs, huge share buy-backs, or special dividends are going to be punished for balance sheets that are too good.
And they should be.
Douglas A. McIntyre is an editor at 247wallst.com.
Entries (RSS)