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Qualcomm Is 6th in Ranking of Corporate Cash Reserves

Like several other multinational technology giants, Qualcomm Inc. is sitting on an eye-popping cash pile.

In its most recent financial report for its fiscal 2013 first quarter ended Dec. 31, the San Diego maker of chips used in smartphones and tablets reported holding cash and marketable securities of $28.4 billion. That’s up from $22 billion for the same quarter in FY 2012.

The sum, which would dwarf the gross domestic products of more than 100 countries, was ranked the sixth largest among cash rich corporations in a recent report by The Economist.

Apple Inc., one of Qualcomm’s biggest customers, is the undisputed top dog with cash holdings of $137 billion as of the end of 2012. It’s followed by China Mobile LTD, Microsoft, Google, Cisco Systems, and then Qualcomm.

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Dividend Decisions

While many would agree that cash is king, the size of Qualcomm’s stash is so large it provokes questions about how it should deploy the money, whether it should increase its dividends, or conduct a special dividend payment. Last year the company increased its quarterly dividend from 21 to 25 cents per share.

As Qualcomm’s cash continues growing along with its revenue and profits, some investors may demand that the company share a larger amount of its profits with them, said Nikhil Varaiya, a finance professor at San Diego State University.

“The question still arises about what they will do with all that cash,” Varaiya said. While Qualcomm’s stock has mostly trended up in recent years that shareholder pressure may not be great. Yet, should the stock falter, investors may call on the company to pay higher dividends or conduct more stock buy-backs, he said.

In recent years, Qualcomm has used both methods to reward shareholders, and has steadily increased the dividend allocations since the payments began in 2003, said Bill Davidson, Qualcomm’s senior vice president of investor relations.

“In the last 10 years we’re returned $19.5 billion in the form of dividends and stock buy-backs to shareholders,” Davidson said.

Qualcomm also uses its hefty war chest to buy companies that fit its strategies. According to the company’s latest 10-K report, Qualcomm spent $774 million in cash to acquire eight businesses in the last fiscal year that ended Sept. 30.

In 2011, Qualcomm did its largest acquisition in buying Atheros Communications, a Bay Area maker of chips that go into Wi-Fi networks, for $3.1 billion.

That deal came about after Qualcomm pulled the plug on a venture that didn’t work out called MediaFlo TV, said Bill Kreher, senior tech analyst with Edward Jones.

“That to me was an example of prudent capital deployment,” Kreher said. “They admitted things weren’t going the way they thought it would (with MediaFlo), and pulled the plug and sold the wireless spectrum license (for the television venture) to AT&T.”

‘Dry Powder’

Hoarding large sums of cash is common to major technology corporations, which tend to pour back big chunks of it into research and development, and retain it for possible acquisitions, Kreher said.

“A lot of technology companies tend to keep a lot of cash on their balance sheet as dry powder that will allow them to use it in case opportunities present themselves,” he said.

Davidson said the bulk of Qualcomm’s cash reserves are maintained in its Asian subsidiaries. About $18.3 billion is ensconced there, while the remaining $10.1 billion is kept in the company’s domestic subsidiaries.

The domestic cash is used to pay dividends and for stock repurchases, among other things, he said.

The company would like to bring a lot of its offshore money back into this country, but is effectively prevented from doing so because of the large corporate tax bite that would incur, Davidson said.

About five years ago, the government enacted a one-time tax reduction on the money corporations returned or “re-patrioted” to this country. “It was a one-shot thing they did that allowed us to bring back a maximum of $500 million and we did that,” Davidson said.

If the tax code was changed, Qualcomm and other large corporations with big cash reserves in overseas operations would be inclined to invest that money in this country.

Although Qualcomm has heard occasional criticism regarding its cash management, Davidson said, the company has followed a methodical approach in rewarding investors, and this has worked well.

“We have staying power because of this cash …We feel like we want to be well-capitalized for the stability of this business,” he said.

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