Wayne, Normal R&D is expensed. It is purchased R&D that is capitalized. This has always seemed to me like running in house expenses through the income statement and capitalizing outsourcing. Nutso, in other words.
One reason Asian tech cos are not as "profitable" as comparable US cos. is that they have much shorter depreciation schedules. US firms complain about this when they pay taxes, but they tend to like it when they report eps. In fact, since "building shareholder value through bald faced lies" has become the number one goal and has been successful, temporarily, all of the complaints about insufficient US depreciation schedules have seemed to disappear.
That doesn't obscure the fact that the depreciation schedules and expensed R&D do not come anywhere near covering the amount the firms have to pay out to keep current. The rap of tech stocks, since the 1960s, is that the great majority of them never develop "free cash flow." Yes, many have huge reported eps and even large and phony positive cash flow. But then they sell shares and debt and assets to raise cash for normal spending. The fact that they are also paying employees with unexpensed air paper, known as stock options, increases this tendency geometrically.
One bugaboo that has made me so negative on Micron over the years is that they have never had a nickle of free cash flow despite years of supposedly large eps. Every penny they "earn," plus more, goes into staying current in the business, with the result that debt and shares outstanding continuously expand. That means that without a friendly securities market, there is no company there. |
