Electronics companies are getting mauled on the equity markets as panicky investors flee to safer investment U.S. treasury portfolios on growing fears the current economic recession might not be resolved anytime soon.
Semiconductor companies and other electronic sectors that are heavily dependent upon the equity market, cash flow and other financial sources for the huge sums they annually spend on capital equipment, R&D and personnel retention programs are likely to see their recovery efforts further hampered by the inability to tap investors for operating funds.
Research firms have previously warned of the dire consequences of the tight financing environment but as stocks swoon and shares set new record lows, the equity market is also fast closing to manufacturing and other capital-intensive companies as an alternate source for business funding.
In recent months, few companies have endeavored to call upon investors for additional funding or even use the facility of the bond market to raise cash. Cisco Systems Inc., for instance, raised $4 billion from bond investors earlier this month partly to retire debts and fund "general corporate purposes."
The company said the offerings would bear interests at an annual rate between 4.95 percent and 5.916 percent.
Other companies are not likely to be that fortunate. Those that wish to follow Cisco's path may have to pay a hefty premium to bond investors because many tech companies have had their ratings downloaded by ratings agencies due to concerns about the ailing economy.
With electronic stocks and especially shares in semiconductor companies trading at levels last seen five or more years ago, manufacturers seeking to beef up their dwindling cash resources via public offerings face the prospects of having their shareholding base severely diluted as they attempt to successfully raise enough funds from institutional investors.
More likely, however, these companies may not even get enough investors to participate in a public offering or bond sale due to valuation concerns, meaning any electronic manufacturer urgently in need of cash to fund operations in a low cash flow environment could sink further into difficulties.