Filed under: Forecasts, Deals, Industry, eBay (EBAY), EMC Corp (EMC)
Tech companies suffered in the huge world wide web explosion in 2000. Part of the problem was that many of them didn’t have adequate cash reserves to make it through the storm. They are 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 almost $232 billion in cash and cash equivalents, up more than 6% from nearly $218 billion a year earlier, according to Standard & Poor’s.”
The move is mindless and absolutely 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.
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