Silicon Valley technology companies produced record profits in 2013, but much of that cash was pushed into bank accounts and returned to investors at a level never before seen in the region's iconic industry.
While pulling in more than $100 billion in net income for only the second time, the 150 largest tech companies in the Bay Area returned almost all of it -- $97.5 billion, twice as much as any previous year -- to investors, amid concerns that their large cash hoard of $500 billion was attracting activist investors like bears to honey.
Activists targeted Riverbed Technology, Juniper Networks and eBay, but Apple, which is sitting on $159 billion in cash and other investments, was the largest and most profitable target. For the third consecutive year, Apple claimed the top spot on the SV150, this newspaper's annual ranking of the largest public technology companies in terms of sales. The Cupertino tech giant's $174 billion revenue total was the largest in Silicon Valley tech history, and more than Apple's two largest rivals -- Hewlett-Packard and Google -- pulled in combined.
Apple announced its first dividend in 17 years in 2012 -- a move late cofounder Steve Jobs famously resisted during his tenure as CEO -- and last year announced a plan to return $100 billion to investors through 2015, including what it promised would be the largest share-repurchase program in corporate history.
The SV150's total share repurchases were up 148 percent in 2013, to a record total of $72.3 billion. Investors received $25.1 billion in dividend payments.
"You are seeing these companies getting farther along in their trajectories where they do need to produce cash to maintain value," said Robert Eberhart, a management professor at Santa Clara University. "The modern business world does not see that part of their obligation is to hire more people and give great benefits, but to return more cash to investors."
Also, companies hoard cash when they're uncertain about the future, Eberhart said, and there's much less fear about the future now in Silicon Valley, where combined market value of the SV 150 reached its highest peak since the dot-com bubble burst in 2000.
Wall Street activist investors found their way to the valley in increasing numbers.
Corporate raider Carl Icahn, not satisfied with Apple's moves, pushed the company to increase its stock repurchases even more, a campaign he dropped only after large Apple investors such as the California Public Employees Retirement System and influential shareholder advisory firm Institutional Shareholder Services lined up against him.
Icahn has become a regular figure in Silicon Valley, selling more than half his shares in Netflix -- purchased in 2012 with a call for the Los Gatos company to investigate acquisition possibilities -- for a huge profit in October. On Thursday, he dropped his campaign to force eBay to sell part or all of PayPal.
He has been joined in the valley by other activist investors in recent years, including Daniel Loeb of Third Point and Paul Singer of Elliott Management, and their style of investing and immediately agitating for changes that will bring a fast return is likely to stick around.
"The activists are here to stay," said David Larcker, professor at the Stanford University Graduate School of Business. "There are more of these people, they have more assets under management and they tend to work together."
"They've been a fact of life in the U.S. for a generation,'' he said. "It's just new to the valley."
Dividends and stock repurchases are an easy way to satisfy activist stockholders, as well as large institutional investors seeking larger returns when companies reach a mature stage where revenue growth -- and stock prices -- are less likely to shoot higher. But they also agitate for other changes, including job cuts and acquisitions, that could have a major effect on Silicon Valley companies.
Elliott Management, for example, invested in valley networking companies Riverbed Technology and Juniper Networks in 2013. At Riverbed, Singer's hedge fund made a pair of unsolicited acquisition offers that one analyst called "a game of high-stakes poker" meant to spur larger bids that the San Francisco company's board couldn't ignore. Less than a week after its first Riverbed bid, Elliott announced a substantial investment in Sunnyvale-based Juniper, then launched a 28-page presentation suggesting the company slash its spending on research and development by nearly half a billion dollars a year and criticizing the company for paying software engineers more than its rivals.
While Riverbed has avoided wholesale changes, Juniper responded with plans to return $3 billion to investors over three years and cut 6 percent of its workforce, more than 500 employees.
In total, while the SV150's net profits rose 17 percent in 2013 and sales gained 4 percent, total workers employed by the SV150 gained 3.1 percent, a decline from 2012's gains. In addition to Juniper's announcements, Intel has said it plans to cut 5,000 workers from its payroll in 2014 and Hewlett-Packard is continuing a reduction of approximately 34,000 job cuts that it expects to complete this year.
$103.7 billion: SV150's total profits, a record
$72.3 billion: Amount spent to repurchase stock
$25.1 billion: Total dividend payments
$97.4 billion: Total investor return
$48 billion: Previous record for SV150 investor return
$36.7 billion: Apple's dividend payments and stock repurchases