“Go East, young nerd!”
It has become a rite of passage for young and ambitious nerds to pack their bags for California. But giants like Cisco, Microsoft and Google have tens of billions of dollars trapped outside the United States. Perhaps the young Turks should consider basing or at least incorporating their new technology businesses overseas if they want the best chance of selling out to an industry leader.
Google’s purchase of Oslo-listed and San Francisco-based Global IP Solutions (GIPS) is just the latest example of such a purchase. And the technology aristocracy has plenty of overseas firepower. Cisco, Microsoft and Apple, for instance, between them had $120 billion dollars of cash and investments, and very little debt, on their balance sheets at the end of last quarter.
While many companies don’t break out the figures, much of this is stuck overseas. Ebay, for example, had 75 percent of its hoard in foreign countries at the end of 2009. If the companies were to bring the money home to the United States, they would take a tax hit. That’s because they would have to pay the U.S. tax rate on the repatriated profits, previously only subject to typically lower rates of taxation elsewhere.
These overseas piles are growing, too. IT spending is increasing at a fast clip in places like China and Russia. The tech companies’ costs, however, are still weighted towards the United States.
So what are the tech giants to do? They can lobby for another tax amnesty, the last one of which came in 2004. Another solution is to use the trapped cash to buy overseas rivals. Cisco, for example, acquired Norway’s Tandberg earlier this year for $3.4 billion.
Sure, Google wanted GIPS primarily for its voice technology, not the small tax benefit of using its overseas cash. And the tech industry has traditionally clustered in California because there’s lots of engineering talent, venture capital and specialized services that add value for businesses based there. Yet at the margin, there may be an edge for an entrepreneur looking to sell out if the big boys can use their overseas cash.
After all, Silicon Valley has long counted on talented Asian and European immigrants for much of its innovation and growth. The tech giants’ trapped cash piles might be something that encourages them to maintain their ties with their home countries.