When Microsoft allocated $ 60 billion to buy back this week, references in the financial media were barely justified. Such huge amounts seem to be almost routine these days.
Recent repurchases by software companies are already at the pace of running out of money in less than two years.
But technology buyback jackpots need to be more careful when big new technology markets are open. Many American companies are in dire straits by diverting excess cash to buy back shares rather than increasing investment and risk-taking. It’s hard to ignore the same concerns for all but the wealthiest tech companies.
Such financial engineering has long been criticized in Silicon Valley as a shift from the true purpose of tech companies.
As the industry matured, tech companies became part of the largest buyback index. Microsoft’s stake has fallen by almost one-third since the technology bubble 20 years ago, even after considering all the new stakes passed to employees or used for acquisitions.
Thanks to Big Tech’s profit boom, some companies really seem to get everything. Apple has spent nearly $ 450 billion since it launched a buyback in 2013. The shareholder may one day look back and regret not endangering some of that money in a whole new market, such as car manufacturing, but now few people question the level of investment. .. With a wide range of technologies.
Since Satya Nadella took over as CEO in 2014, Microsoft has quadrupled the amount it spends each year to buy back its shares, as does capital investment.
For others, devouring their stock has had more problematic consequences. The amount of money involved put the rest of the company America behind. IBM, Oracle, Intel and Cisco have each reduced their outstanding shares by 40-50% since the technology bubble.
This helps to support stock prices that are, to a greater or lesser extent, below the broader stock market. Oracle’s corporate value may have risen by only a quarter since the millennium began, but the fall in stock prices has almost doubled.
Some of these companies have misplaced their financial priorities and have been unable to make big bets on new markets, so they cannot escape the conclusion that they are slowly eating themselves up. .. This may be clearer than in other cases. IBM has repurchased about half of its shares since the peak of the tech bubble, but stock prices are about the same as when the millennium began.
By neglecting to invest enough in the early days of the cloud computing era, cloud computing is far behind leaders and it is not easy to catch up. IBM’s capital investment fell to $ 2.6 billion last year. In contrast, Amazon has invested nearly $ 50 billion in capital spending in the last 12 months, most of it in new data centers and warehouses.
Intel also restricted investment during a period when the chip industry was experiencing a historic boom. Pressure to soothe Wall Street increased repurchases to approximately $ 40 billion between 2018 and 2020. That’s four times the amount spent on repurchases over the last three years.
Both companies have delayed their financial priorities. IBM finally abandoned it two years ago after getting off the repurchase treadmill in 2014 and significantly reducing repurchases. Intel’s new CEO, Pat Gelsinger, has also promised to divert cash into investments.
For Oracle and Cisco, the negative impact of aggressive repurchase programs was less obvious. However, we have strived to keep up with the fast-growing new markets for technology while maintaining our core business position and high margins.
This week, Cisco showed signs of resetting its priorities. He raised his growth goals and provided a stronger example of why Wall Street should consider it a software company, a high-demand growth sector. Cisco chief Chuck Robbins admitted that the company could be criticized for not investing heavily in the past and would not try to increase earnings per share faster than earnings. Stated.
At least Cisco still has cash to increase its investment while continuing to return large amounts of capital to shareholders. Many others don’t have that luxury if they’re trying to invest to stay competitive.
Big Tech’s buyback bonanza demands closer attention Source link Big Tech’s buyback bonanza demands closer attention