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Cash is still king. And cash-rich companies are using their money to enter new markets, retire debt and assure investors that they can outlast the current recession.
The king of cash is — no surprise — Microsoft. The software giant currently has about $36.2 billion in cash and short-term investments. Microsoft is using part of that cash horde to make a run at the gaming market with its new console, the Xbox.
Technology companies have flourished in times when their revenue was increasing. “But when revenues start to decline, it hurts their operating models. Thats not going to happen to Microsoft,” said Robert V. Green, a technology and Internet analyst at Briefing.com. “Their cash is a huge cushion that gives them flexibility to ride out any decline in IT spending for a long, long time, and most other companies dont have that.”
Last week, Level 3 Communications, the debt-hobbled fiber carrier, used about half of its available cash — nearly $721 million — to buy back about $1.7 billion of the $8 billion in debt it incurred building out its network. But Green questioned whether the move will help the company survive.
A Soothing Balm
Cash also can be a balm for nervous investors. In a call with financial analysts a couple of weeks ago, Mike Lehman, chief financial officer of Sun Microsystems — which lost $158 million on revenue of $2.86 billion in the most recent quarter — claimed that Sun has about $6.3 billion in cash and long-term investments, and that the company “is quite capable of managing through these difficult times.” Flywheel maker Active Power, whose once high-flying stock has careened toward earth, lost $7.4 million in the third quarter on revenue of $6.2 million. But the company assured investors that it still has $120 million in cash and investments.
Having lots of cash, in itself, is not always a good thing, said Karin Thorburn, an assistant professor of finance at the Tuck School of Business at Dartmouth College. But given the current weakness in the debt and equity markets, companies with sizable stashes of cash “are in a relatively stronger position” than their competitors, she said.