Cisco changes financial strategy to benefit from US tax reform

Cisco has become the first of the US technology giants to provide tangible evidence that US tax reform is influencing financial strategy, with the announcement of a $25 billion stock buyback plan. The tax system changes, announced in December, mean US companies can now repatriate some of the huge cash reserves many have accumulated outside the US over the past decade without having to pay higher rates of tax upon them.

While other companies, including Apple, have pledged to bring more cash earned overseas back into the UK following the changes to the tax system, Cisco is the first to announce plans to effectively share the benefit of the changes to the tax system with its investors. If other major technology companies follow suit it will be interesting to see how this might begin to influence their longer term global strategies. Ultimately, this change could lead to some of these companies moving more operations back to the US from Europe and elsewhere.

At the end of January Cisco held $71 billion in cash offshore, the third largest hoard of unrepatriated foreign earnings among US companies, behind Apple and Microsoft. The planned buyback will take place over two years. Cisco is also predicting an increase in revenues of between three and five per cent during the current quarter, based on an improving global economy and internal efficiency improvements within the business. These announcements had a predictably positive effect on the company’s share price, so anyone who happened to buy Cisco stock during the market slump last week ought to be feeling pretty pleased with themselves.

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