Tech Giants Are in No Rush to Spend Overseas Cash
By Douglas MacMillan and Jay Greene
With the passage of the new U.S. tax law, the nation's tech giants can now more freely dip into their stockpiles of overseas cash. They don't seem to be in any hurry.
The five largest U.S. technology companies by market value combined hold nearly $500 billion in cash outside their borders. In their first earnings calls since the tax overhaul, three -- Microsoft Corp., Alphabet Inc. and Amazon.com Inc. -- suggested greater access to the cash didn't change their spending plans.
"When we have seen an opportunity to invest, we have not really waited for tax reform to do that," Microsoft Chief Financial Officer Amy Hood said on a call with analysts.
Alphabet finance chief Ruth Porat reported "no change in our approach to capital allocation." Amazon's CFO, Brian Olsavsky, said the company already spends a great deal on its workforce.
That contrasts with Apple Inc.'s announcement last month it would make a $38 billion one-time tax payment on its offshore cash holdings, bring most of the money home, and boost spending in the U.S., creating more than 20,000 jobs. In his State of the Union address Tuesday, President Donald Trump hailed Apple's plans as evidence of the tax law's success.
For Facebook Inc., the fifth company, the impact of the tax law on spending never came up on its call.
"Investors are a little disappointed that you didn't get clarity and transparency from these management teams on what they are going to do" with overseas cash, said Daniel Ives, head of technology research GBH Insights.
The tax change benefited the bottom line for many American corporations by reducing the statutory corporate rate to 21% from 35%. The impact already has spurred businesses to go on acquisition sprees, launch share buybacks, cement plans to build new U.S. plants and dole out bonuses to workers in industries ranging from telecommunications to airlines.
Tech firms, which hold more overseas cash than any other industry, lobbied for the law in part because it promised them a one-time discounted rate of up to 15.5% on those holdings.
Most don't need to use that cash because they have been able to borrow low-cost capital -- a practice known as "synthetic repatriation" -- to return cash to shareholders. Over the past five years, tech companies in the S&P 500 index tripled their amount of long-term debt to $531 billion, a faster pace of growth than any other industry over that period.
Many of the companies on their calls said they are still working through the complexities of the tax code. Some could announce changes to their spending plans in the coming weeks.
Alphabet, Amazon and Microsoft declined to comment beyond their calls.
In an emailed statement, Facebook CFO Dave Wehner said the tax law gives the company "added flexibility about where to hire and build," but didn't say it resulted in any increased investment. Mr. Wehner said Facebook already planned to double the size of its U.S. workforce over the next three years. An Apple spokesman said the company didn't have anything to add beyond its prior comments.
It isn't clear how much of Apple's investment was triggered by tax considerations and how much Apple would have done anyway. Finance chief Luca Maestri said in an interview Apple's goal is to target a "net cash neutral" position over time, compared with the large gap between its current holdings of $285 billion in cash and $122 billion in debt.
That implies Apple could spend as much as $163 billion across dividends, share repurchases and acquisitions in the coming years, analysts said. The company on its call said it plans to disclose more details when it next reports earnings.
Even after Apple garnered presidential praise for its moves, Microsoft, whose international cash pile is second only to Apple's among U.S. corporations, chose to play down the impact of the tax law. On a Jan. 31 call with analysts, Ms. Hood said Microsoft made acquisitions "when they made sense" and "didn't wait when we thought about capital return" to shareholders.
Alphabet announced plans to repurchase $8.6 billion in shares -- "a modest increase" to previous programs, Ms. Porat said on the call.
None of the tech giants want to see rivals snap up companies they could have. Better access to overseas money could increase the tech giants' acquisition activity as well as prices for potential targets, said Stifel Nicolaus & Co. analyst Brad Reback.
Other tech companies were spare with details on their calls. The tax-law impact on spending didn't come up on Qualcomm Inc.'s call.
PayPal Holdings Inc. CFO John Rainey said while the company wants to return cash to shareholders, "we don't feel pressured to go out and do that immediately."
Intel Corp. CFO Robert Swan said "tax reforms provide further incentive to continue investments" in U.S. research and development, but didn't elaborate.
Martin Schroeter, vice president at International Business Machines Corp., said the company is "absolutely delighted" about the tax law -- then cautioned it wouldn't result in any immediate changes to spending.
IBM, PayPal and Intel declined to comment further. A spokeswoman for Qualcomm noted the company in its annual report said it planned to use overseas cash to pay for a portion of its acquisition of NXP Semiconductors NV.
Tripp Mickle contributed to this article.
Write to Douglas MacMillan at email@example.com and Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
February 05, 2018 08:14 ET (13:14 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.