Technology companies don't need a cash handout. What they really need is government support for risky basic research that will yield big dividends for the entire ecomony down the road.
PHILADELPHIA The U.S. government cannot save America's auto industry from imploding. Neither can it save the equity market simply by pouring money into it.
Uncle Sam has a huge desire to help, but rescuing Detroit and Wall Street is beyond even its obviously enormous financial capacity. What the equity market and the automotive industry need even more than cold cash is assurance that things will improve. The only action that can set the auto industry and the economy straight is solid product innovation.
There's a lesson here for high-tech companies. As the U.S. government ponders offering General Motors Corp. financial assistance to hasten its takeover of Chrysler LLC, some in the high-tech industry wonder whether semiconductor vendors should similarly call on politicians to assist the market with a cash infusion.
But like a few banks that weren't run into the ground, technology companies don't need a cash handout. What the industry needs is federal support for basic research and development, and for the government to foster an innovative environment that would be beneficial not just for the industry but also the rest of the global economy.
R&D feeds future growth, and it's something technology companies have always been good at--of course, with some backing from the government in areas where the return on investment is lengthy or the period of product development is so extended and loaded with uncertainty that deeper pockets are essential.
That process is now in jeopardy on two fronts as the market value of technology companies plummet and the U.S. government—the primary facilitator of some of the industry's most important inventions like the Internet—continues its excessive deficit spending. This public debt will invariably result in cuts to discretionary spending, including R&D assistance to high-tech companies.
Even if the U.S. government wants to help the semiconductor industry develop next-generation products or improve its process technology, for instance, it may not be able to do this because a huge chunk of available resources is being sucked up by the financial sector.
This is happening as technology companies are being forced to slash operating costs, including R&D expenses, due to weakening demand and the need to conserve cash for all but the most essential functions.
Declining market value hurts innovation
Falling market valuation for technology companies is going to worsen the situation.
High-tech companies have traditionally relied on such mechanisms as stock options, share sales and initial public offerings to fund innovation, attract and compensate experienced staff, fund acquisitions and raise capital for expansionary activities.