America’s high-tech sector continues to be remarkably robust and to earn substantial sums of money. Normally part of the way you get an economic recovery is that some firms are earning big profits, and then they plow their earnings into new investments that drive further growth. In the tech sector, in particular, it’s been anticipated that big players will use their profits to acquire smaller firms and deploy their ideas in more robust ways.
So far, though, as Richard Waters and Chris Nuttall point out in the FT, the anticipated M&A wave hasn’t happened and firms are just stockpiling more and more cash:
Conservative balance sheet management in the face of economic uncertainty and the failure of an anticipated wave of mergers and acquisitions to materialise have resulted in a massive build-up of liquidity among a small group of leading companies.
The 10 largest tech companies added more than $65bn to their reserves since the depths of the slump a year ago, according to a Financial Times analysis. That has come in spite of declining revenues over that period at companies such as Microsoft, Cisco Systems and IBM.
Incidentally, channeling funds from people sitting on large piles of cash to entrepreneurs with good ideas and a need for capital is the sort of thing a healthy financial sector is supposed to do.