What the Tax Cuts Mean for Apple, Cisco and Silicon Valley
#SiliconValley will see limited benefits from Washington’s cuts to the corporate tax rate. A shift in the government’s tax policies towards overseas cash and earnings will help tech companies return capital to shareholders and fund acquisitions. The “main story” for @Apple Inc. ( #AAPL) , #Cisco Systems Inc. ( #CSCO) and other IT hardware and data networking companies is the break on overseas cash, @Barclays Capital analyst @Mark Moskowitz wrote in a recent note. While the government had previously waited until a company repatriated cash to levy a 35% tax, it will now impose a 15.5% tax on cash earnings. Apple has the most to gain in absolute dollars, with more than $250 billion in offshore cash at the end of the last quarter. Moody’s Investors Service estimates that the iPhone maker will have about $265 billion overseas at the end of the year. Gene Munster of Loup Ventures expects Apple to bring back $214 billion in cash and increase its share buyback by $69 billion. Even with the increased cash at its disposal, Munster suggests that Apple will stay focused on deals valued under $1 billion. ￼ Networking power @Cisco and #datastorage and management software developer @NetApp Inc. ( #NTAP ) have greater proportional benefits than Apple. Cisco’s cash equals 36.% percent of its market cap 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 may also pay down debt. @Juniper Networks Inc. ( #JNPR) and @Western Digital Corp. ( #WDC) have offshore cash equal to 18.4% and 22.8% their market caps, respectively. While much of the cash that Apple and others repatriate will fund capital returns to shareholders, some will go to acquisitions. The mega-cap tech companies have about $550 billion in gross cash outside the U.S., Evercore ISI analyst Kirk Materne noted in a recent report, suggesting that the capital will drive deals. The tax break on repatriated cash is part of a larger shift from a worldwide system that imposes a 35% tax to a territorial system that will impose less of a tax burden on income from overseas.