Silicon Valley will see limited benefits from Washington's cuts to the corporate tax rate. A change in the government's fiscal policies towards cash and profits abroad will help technology companies to return capital to shareholders and finance acquisitions.
The "main story" for Apple Inc. (AAPL - Get Report), Cisco Systems Inc. (CSCO - Get Report) and other IT companies of hardware and data networks is the breakdown of cash overseas, he wrote in a recent Mark Moskowitz, analyst at Barclays Capital. Note. While the government had waited until a company repatriated cash to impose a 35% tax, it will now impose a 15.5% tax on cash profits.
Apple has more to gain in absolute dollars, with more than $ 250 billion in extraterritorial cash at the end of the last quarter. The Investors Service of Moody's estimates that the iPhone manufacturer will have around $ 265 billion abroad by the end of the year.
Gene Munster of Loup Ventures expects Apple to recover $ 214 billion in cash and increase its share buyback by $ 69 billion. Even with the increased cash at his disposal, Munster suggests that Apple will remain focused on offers valued at less than $ 1 billion.
Network Power The data storage and management software developer and Cisco, NetApp Inc. (NTAP - Get Report) has greater proportional benefits than Apple. Cisco's cash equals 36.60% of its market capitalization, while NetApp's is 32.9%, compared to Apple's 28%.
Cisco and NetApp will likely return cash to shareholders and make acquisitions, Moskowitz suggested. NetApp can also pay debts.
Juniper Networks Inc. (JNPR - Get Report) and Western Digital Corp. (WDC - Get Report) have extraterritorial cash equivalent to 18.4% and 22.8% of their market capitalizations, respectively.
While much of the cash that Apple and others repatriated will finance equity returns for shareholders, some will go towards acquisitions. Megacapital technology companies have around $ 550 billion in gross cash outside the US UU., Evercore ISI analyst Kirk Materne said in a recent report, suggesting that capital will boost deals.
The tax reduction on repatriated cash is part of a larger change in a global system that imposes a tax of 35% on a territorial system that will impose a lower tax burden on foreign revenues.
Starting next year, companies will pay 10.5% or 13.125% of half the revenues of subsidiaries outside the United States. If they sell products or services produced in the USA. UU In foreign markets, they will pay taxes of 10.5% or 13.125%, a discount to the new corporate tax rate of 21%.
Silicon Valley generally pays lower taxes than energy, telecommunications and industrial companies, and will benefit less from the reduction in the corporate tax rate from 35% to 21%.
