The recent tax overhaul enacted in late 2017 freed up large pots of money that had been made in other parts of the world, through Big Tech enterprises, and stored there because bringing it back proved too expensive before the tax revisions came into effect.
As a result of having access to additional monies, the 20 most active tech companies spent over $261 billion during the past year in buying back their companies’ stock (ref WSJ). The largest companies (Apple, Oracle, Qualcomm, Cisco Systems and Microsoft) accounted for the largest bulk of the money spent on buybacks – $175 billion over the past 12 months. Apple was one of the biggest purchasers of its stock, spending $75 billion during the past four quarters, accounting for roughy 4% of the cumulative shares traded during that time. This circumstance assisted the company in two ways – it provided a place to put the money that was being brought home, and it also helped shore up the company at a time when the iPhone business was slowing. We’ve talked in past posts about Oracle’s aggressive buyback efforts – mostly by way of shoring up the stock. Oracle spent $36 billion in the past year, in an effort to offset the company’s lagging revenue growth of 1%. Oracle’s buybacks have reached the equivalent of three times the company’s free cash flow for the period. Given the extensive use of the buyback option, it’s likely that that has been a strategy whose end is near. Cisco has spent $22.6 billion in buybacks during the past year, or, about 1 1/2 times the company’s free cash flow. And, Qualcomm’s $23.4 billion in buybacks over the past year is more than four times what the company averaged in the years between 2013 and 2017. In Qualcomm’s case, the buybacks are seen as a consolation prize for their investors after the company’s failure to acquire NXP Semiconductors. Apple, for its part, has nearly unlimited amounts of cash, but, that company, also, is likely to shut down its recents practices, particularly since it now needs to get on with reducing the $100 billion debt that was accrued when its offshore cash was unavailable for use and it developed the practice of financing a cash-return program in recent years. Apple also plans to put more money into research and development in the future in an effort to broaden its business and reduce reliance on the iPhone. Thus, for a variety of reasons, big tech companies have been excited about bringing their cash stashed abroad home and have found good ways to spend it. It can be assumed that the spending will continue; however, there’s likely to be a downturn in buybacks.