Where's the Cash at HP?

The Wall Street Journal reports that some investors have concerns about the balance sheet at HP.   Many other tech companies have stockpiled cash, while minimizing debt, during the past few years.  For instance,  cash net of debt equals $45 billion for Microsoft, $28 billion at Cisco, and $17 billion at Oracle.  Apple has more than $80 billion in cash and securities on its balance sheet and no debt at all.  Meanwhile, HP has spent a considerable amount of cash on acquisitions in the past year.  Moreover, according to the Wall Street Journal, " H-P has leaned more heavily on borrowing than some other tech companies. Its long-term debt has swelled to $19 billion through the first three quarters of 2011 from $7.7 billion in 2008."

I find this investor concern interesting, given how much politicians and journalists have taken to criticizing many firms such as Cisco and Apple for "stockpiling cash" instead of investing it.   This Wall Street Journal article reminds us of why investors generally like firms to disburse excess cash, but perhaps hold a different view when it comes to tech companies.  In the tech industry, conditions change quickly and dramatically at times.  That potential turbulence and volatility means that keeping leverage low and cash balances strong can make a good deal of sense.   Acquisitions also have played a major strategic role for firms such as Cisco over the years.  Keeping a strong cash position with low debt puts these firms in a position to move with speed and flexibility when an acquisition opportunity emerges.  

On the other hand, perhaps the weaker balance sheet at HP will play an important positive role in the short term.  The discipline of debt can restrain management from making flawed acquisitions or pursuing value-destroying diversification strategies.  Perhaps the balance sheet will constrain HP in a positive way, and keep new CEO Meg Whitman focused on shoring up the core businesses in the near term.