Hewlett-Packard Cash Balance Conundrum

Hewlett Packard (HPQ) released numbers and maintained it’s claim as the world’s largest technology company. The market cap is around $120 Billion. They have purchased EDS and 3Com so it’s up up and away. The question becomes one of capital management. (By the way I love most of their products)

The dividend yield is less than 1% and dividend payouts seem to be an after thought. They are more focused on the sexy M&A side of the technology business. Yes their cash balances are large. Would you love the company if they were much smaller? We all know what cash is yielding and right now approximately 10% of their market cap is invested in cash. Therefore 90% of their balance sheet is driving 100% of their ability to create wealth.

To maintain the large cash balances and still do large deals or spend money on R&D they will need to raise capital. The dividend yield is low and they will need to make it more attractive. Also the leverage is very low and interest costs are very low. For god’s sake why not lever up somewhat with cheap long term debt and lock in some strategic advantages into the future.