New York, July 09, 2012 -- US technology companies are set to continue stockpiling cash but ratings are unlikely to be affected, says Moody's Investors Service in a new special comment "Overseas Cash Pile To Continue Surging, Albeit with Limited Credit Impact."
Still, these large cash piles are unlikely to affect credit ratings as strong liquidity management is embedded in Moody's ratings, says the rating agency. In addition, companies covered in the report have very strong cash to debt ratios, securing their ratings for the time being.
Moody's estimates that major technology companies hold aggregate cash of $457 billion, with industry behemoth Apple holding $110 billion, or 24% of the total. The top six companies--Apple (unrated), Microsoft (Aaa stable), Cisco (A1 stable), Google (Aa2 stable), Oracle (A1 stable) and Qualcomm (unrated) --together represent $324 billion, or 71% of the multi-billionaire club's $457 billion of cash balances.
Major technology companies continue to stockpile cash to create financial flexibility and protect against business risks inherent in the technology sector. High cash balances also allow companies to take swift advantage of opportunities or challenges, says Moody's
These hoards--and concentration among companies--will continue to grow, says Moody's. The rating agency estimates that the top ten cash holders represent 83% of aggregate cash, up from 74% at the end of 2006. Moody's projects this concentration to exceed 85% over the next three years.
In addition, overseas cash holdings are projected to double over the next three years. Moody's sampled 22 rated and unrated US-based technology companies that currently report the geographic location of cash holdings, and found that $289 billion, or 70% of their total cash is maintained overseas.
The report also notes that a compelling reason for technology companies to keep cash abroad is the tax cost of repatriating the funds, says Moody's, and acts as a disciplinary force that limits huge dividend payments, share buybacks or credit weakening acquisitions. It's unlikely this situation will change in the current political cycle, says Moody's.
Moody's research subscribers can access this report at http://www.moodys.com/research/US-Technology-Overseas-Cash-Pile-to-Continue-Surging-Albeit-with--PBC_143652.
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Richard J. Lane Senior Vice President Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Robert Jankowitz Associate Managing Director Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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