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By Bloomberg

Longtime technology bellwethers -- including Intel Corp., Cisco Systems Inc. and EMC Corp. -- have more than doubled their total debt in the past five years, casting aside their traditional aversion to rapid borrowing.

Low interest rates and investor demand for dividends and stock buybacks have prompted Intel, International Business Machines Corp., Cisco, EMC, Microsoft Corp., Hewlett-Packard Co. and Oracle Corp. to boost their combined debt level to a record $161.5 billion this year, from $78.3 billion in 2009, according to data compiled by Bloomberg. The cash raised has gone toward $200 billion of repurchases and dividends in that period.

The flood of debt to fund shareholder returns is a major change for companies that historically hoarded cash and avoided borrowing. While payouts help burnish stock prices, some investors say that money would be better used on other methods of boosting future growth, such as acquisitions and investment in research and development -- spending that can help companies keep up with the brisk pace of technological innovation.

“The changes are so quick -- companies that people say are bulletproof are not,” said Daniel Morgan, a fund manager at Synovus Trust Co. in Atlanta, who has been investing in technology since the 1990s. “The cost of capital has become so low, it’s just too tempting for them to ignore.”

Even as sales growth has slowed, stock prices at many of these veteran technology firms have gained. As a group, these companies’ shares gained 88 percent from the start of 2009 through the end of November, almost keeping up with the 97 percent gain in the Dow Jones Industrial Average in the same period, according to data compiled by Bloomberg.

Overseas Cash

The U.S Federal Reserve has maintained the benchmark interest-rate target in a range of zero to 0.25 percent since December 2008 to support the economy. That’s made it cheap for companies to sell bonds and diminished the returns on cash deposits. The average yield on Intel’s debt coming due in three years is about 1.4 percent, while Microsoft’s $1.25 billion of debt maturing in December 2018 yields 1.5 percent, trading data show.

Also influencing the decision-making at these companies is the amount of revenue and profit they earn outside the U.S. At Redmond, Washington-based Microsoft, for example, 93 percent of its cash is parked overseas -- meaning it would have to pay U.S. taxes to use that money for buybacks or dividends.

The rate at which these companies have piled on debt is more concerning than the amount they’ve added, according to Josh Spencer, a fund manager at T. Rowe Price Group Inc. Unlike older industrial corporations, technology management teams have little experience with the long-range forecasting required to predict what kind of debt load they can reliably service in the future.

‘Historical Fear’

“It’s a meaningful change for tech companies,” Spencer said. “They’re trying to break free of this historical fear of debt that tech companies had because of the cyclicality and the capital intensity. I disagree with the speed that they’re getting there.”

Some investors would rather the technology industry raise funds for acquisitions and investments in new products or manufacturing than use debt to buy back shares, said Kim Forrest, a fund manager at Fort Pitt Capital Group Inc.

“With tech companies you have to look forward, because it can change so fast,” she said. “At the end of the day you’re not buying a balance sheet, you’re buying a company.”

Representatives from Microsoft, Oracle and Hewlett-Packard declined to comment on the companies’ debt strategies. Intel, IBM and Cisco didn’t immediately return messages seeking comment. Dave Farmer, a spokesman for EMC, said the company is comfortable with its debt position.

IBM’s Strategy

IBM, in its third straight year of declining sales as it grapples with the shift to cloud computing, is one example of a company burning through cash and adding debt to bolster earnings per share. The Armonk, New York-based company has depleted cash by 17 percent and increased its debt level 79 percent in the past five years, making it one of the few companies in technology to have net debt.

“Sure, it’s an investment-grade balance sheet. Sure they can service it, but they’ve been adding debt in order to buy back shares,” said Mike Shinnick, a fund manager at Wasatch Advisors Inc. “That’s been masking the lack of growth and masking the deterioration of the business.”

Reflecting the change in approach to corporate finances, Intel, the largest company in the semiconductor industry, has told investors that it’s comfortable with less cash on its books and intends to reduce its net cash position further. The chipmaker says it operations generate enough cash to pay for spending on plants, fund research and return profits to investors.

R&D Spending

Santa Clara, California-based Intel spends about $11 billion a year on research and development -- second only to Microsoft among companies on the Dow average -- and another $11 billion on plants and equipment. Most of the products it starts the year with are obsolete within 12 months.

Even though Intel hasn’t posted annual revenue growth since 2011, its stock reached an almost 14-year high this year and is the best performer on the Dow average in 2014.

Intel rival Qualcomm Inc. is considering entering the debt market as well, according to Chief Financial Officer George Davis. Qualcomm has been increasing returns to shareholders, he said, and will keep spending on technology as its top priority.

“We’re going to return more without having to damage the balance sheet for the long run,” Davis said. “If, for whatever reason, we need to make an investment that reduces the return, we’ll do the right thing for the long-term growth of the company.”

Predictable Revenue

Supplying computing or software to corporations provides these companies with more predictable revenue that doesn’t dry up quickly -- unlike serving consumers, whose tastes can change rapidly, said Pat Becker, a fund manager at Becker Capital Management in Portland, Oregon. Companies such as Microsoft have carried too much cash on their balance sheets for years, he said.

The world’s largest software maker leads the group with $89 billion of cash and short-term investments on its books. It’s more than doubled those reserves in the past five years.

“We’re in a different era,” Becker said. “If these are businesses that are going to go negative on the bottom line, that’s when you’d need a big cash balance, that’s where you’d need to build a moat around it.”