3 Triangle titans pile up billions in cash

Staff WriterNovember 14, 2010 

  • Cree

    Headquarters: Durham

    CEO: Chuck Swoboda

    Annual* revenue: $867.3 million

    Employees: 4,500 workers worldwide, including more than 2,500 in Durham

    Business: Light-emitting diodes, or LEDs, that are used to illuminate car dashboards, cell phones, televisions and signs, as well as for interior and exterior lighting. The company makes its own light fixtures and bulbs and supplies LEDs to lighting companies.

    Red Hat

    Headquarters: Raleigh

    CEO: Jim Whitehurst

    Annual** revenue: $748.2 million

    Employees: 3,400 worldwide, including more than 600 in Raleigh

    Business: Linux open-source software

    SAS

    Headquarters: Cary

    CEO: Jim Goodnight

    Annual*** revenue: $2.31 billion

    Employees: 11,400, including 4,600 in Cary

    Business: Business intelligence and analytics software used by companies to analyze their operations and predict trends

    * Fiscal year that ended June 27

    ** Fiscal year that ended Feb. 28

    *** 2009 calendar year

    SOURCES: Cree, Red Hat and SAS

Cree, Red Hat and SAS, three of the Triangle's most successful home-grown technology companies, are members of an exclusive club.

Each of them has accumulated more than $1 billion in cash despite the struggling economy.

That's enough to build the new Tanger Outlets center in Mebane 16 times. Enough to buy 2 million iPads. Enough to give every man, woman and child in Raleigh $2,467.93.

Not that these companies would act so frivolously. They're serious companies that respect serious money.

That's how they managed to put together their impressive stashes. They went against the grain by prospering during the recession, and they've continued to thrive as the economy slowly revives.

The money gives them the wherewithal - a honkin' huge chunk of wherewithal - to make acquisitions or otherwise invest in their business as they see fit.

"It represents something that is very important in the market today for both customers and employees - and wasn't so important 10 years ago - and that is stability and viability," said Jim Davis, chief marketing officer at the business software company SAS.

Cash, it turns out, is cool in corporate America these days.

A Moody's study of 1,161 nonfinancial companies that file documents with the Securities and Exchange Commission found that they had $943 billion in cash at midyear, up 22 percent from the end of 2008.

Unfortunately, Moody's noted, with the economy in a funk, "companies are wary of investing their cash in new capacity and adding workers, thereby doing little to abbreviate the jobless recovery."

But the local triumvirate of cash-hoarders are the exceptions that prove the rule:

Cree has added more than 600 workers in Durham since 2009 and is investing $135 million to expand its Durham plant, a move expected to create 244 local jobs over the next two years.

The business software company SAS expanded its worldwide work force by 3 percent last year and expects to hire at least at the same pace this year.

The Linux software company Red Hat has been adding about 100 workers globally every quarter.

There's something else that sets them apart as well.

Moody's found that a key source of cash for many companies was debt - they borrowed money. But here's the amount of debt racked up by Cree, Red Hat and SAS, respectively: zero, zero and zero.

(Cree, the LED lighting company, did raise $434.1 million last fall by selling new shares of stock to the public, no mean feat in the midst of the recession.)

Growth without fetters

"Having cash on hand allows Cree to grow, without restrictions from lenders or financial market timing, and provides us with the financial flexibility needed to invest and grow our business to drive LED lighting adoption," said John Kurtzweil, Cree's chief financial officer. That includes "acquisitions and other business opportunities."

Charlie Peters, chief financial officer at Red Hat, ticks off three uses for the money.

First and foremost is investing in the business to generate "organic growth." Acquisitions and repurchasing the company's shares also make the list.

Red Hat has bought more than $200 million worth of its shares in the past year, which often helps boost the stock's value.

Cary-based SAS, meanwhile, is closely held - it has just two shareholders. Jim Goodnight, the founder and CEO, owns about two-thirds of the business, and co-founder John Sall owns the rest.

Davis said having mucho moolah enables SAS to maintain its independence because it doesn't have to tap the public markets for funding.

"We believe that is a big benefit to our culture," he said. That includes letting it invest more in research and development - as a percent of revenue - than its publicly traded competitors as well as focusing on the long term rather than adopting a quarter-to-quarter mentality.

Acquisitions feasible

Shopping sprees are in the mix as well. "I can tell you we are looking at a couple of acquisitions right now," Davis said.

But couldn't Goodnight and SAS erase that impressive cash balance at any time by deciding to pay themselves a stupendous dividend?

"Sure," Davis said. "But would they do that? No. As a matter of fact, they wouldn't even talk about it in jest.

"They're obviously doing fine with the way things are set up now," he added.

Sitting pretty

Fine, in Goodnight's case, means a net worth that far exceeds the annual revenues of SAS, Red Hat and Cree combined.

Goodnight ranked No.35 in the latest Forbes list of the richest Americans, with a fortune estimated at $6.9 billion. Sall was sitting pretty at No. 90 with $3.4 billion.

It's only fair to point out the minuses of having a ten-digit cash balance.

So let's hear from Ted Zoller, executive director of the Center for Entrepreneurial Studies at UNC-Chapel Hill's Kenan-Flagler Business School.

"There is," Zoller said, "no down side to having cash."

david.ranii@newsobserver.com or 919-829-4877

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