Analysis: How do tech giants weather economic storms?

And where does the current economic climate leave smaller companies?

In June this year social networking site LinkedIn began trading on the New York Stock Exchange, immediately seeing its share price double.

Around the same time, Microsoft paid $8.5bn (£5.2bn) for Skype, and internet discount company Groupon announced its intention to list for $750m.

With these seemingly inflated figures, analysts and commentators began to talk of a bubble, which led to fears of a collapse resembling that which followed the dot com boom of the late nineties.

At the time of writing, LinkedIn's shares appear to be in freefall, currently trading at about $75 per share, approximately 39 per cent lower than its peak of around $122 earlier this year.

But analysts are blaming ongoing fears surrounding the economy for the large drop in share price.

So with share prices dropping, how are the big guys faring and what tactics do they use to manage this sort of economic volatility?

Cash hoarding

Tech giants Microsoft, Google and Apple have all taken a knock and seen some share price falls, but only by about 12 per cent each during the same period.

One way in which these companies defend themselves is by hoarding cash, or at least by keeping it close to hand in the form of easily liquefied assets such as short-term investments and marketable securities.

In an uncertain economic climate, it makes a lot of sense to have a large pile of digital dollars at the ready should sales suddenly slow and revenue shrink.

But Carter Lusher, research fellow and chief analyst at Ovum, says this hoarding of cash is nothing new for big technology companies.

"Technology companies have always hoarded cash. It's not just a strategy, it's almost a fetish. They say they need it to weather bad times."

The company with the biggest hoard at the moment is Apple, with purportedly $76.2bn in cash and a mixture of short- and long-term marketable securities. Since the company chooses not to acquire, that leaves a huge pot to pour into R&D, to build new factories and secure exclusive licences to new technologies.

Lusher explains that having the cash to acquire is important to technology companies.

"Firms in the IT industry need resources to buy other companies. To an extent, acquisition activity in the technology industry is nothing more than outsourced R&D."

It is on these principles that Apple's tradition of innovation and success is founded.

When revenue stutters at smaller companies, compromises must be made to balance the books. That could mean job losses, and it could mean funds withdrawn from new product development, both of which are potentially harmful to business in the long term. But with such a huge amount of cash at its disposal, Apple can invest as much as it wants whenever it wants, and let revenue take care of itself.

The company with the second largest stockpile is Microsoft, with a comparatively paltry $52.8bn. One difference between the companies' approach to cash stockpiles is that Microsoft is more acquisitive, purchasing Skype (the deal for which has yet to close, and which will leave an $8.5bn hole in its reserves) and ERM software specialist Prodiance (for an undisclosed figure) already this year.

More acquisitive still is Google, with $35bn in the bank and 17 firms bought so far this year, including online advertising firm Admeld for $400m – still some way short of the 50 it announced it was targeting in January.

And acquisitions are a good way to create value. It is often far quicker to purchase a company already in possession of a great product or key technology than it is to build a team with the right skills and develop it yourself.

Taking the Skype purchase as a particularly expensive example, Leif-Olof Wallin, research vice president at analyst Gartner, explains the various benefits that come with the purchase of a going concern.

"You have a very large and loyal user base with Skype which takes a lot of time to build up. But also, Skype has call-out capabilities in an awful lot of countries. It takes an enormous amount of time to get these operator agreements in place, even for a large enterprise. Skype has been building these capabilities for years," he says.

And that does not take into account the additional benefit that you have effectively got one over on your competitors with the purchase of a desirable company. Facebook was rumoured to have been interested in Skype, which could be part of the reason that the deal was so expensive.

But smaller companies and start-ups do not have the luxury of enormous cash reserves, and instead rely on buoyant markets and expectations of high future profits to raise the capital they need. In the current market, it is understandable that expectations are low, and so fewer companies are floating themselves on the stock market.

But history teaches us that recessions don't last, and boom follows bust. Lusher already sees the shoots of recovery.

"We have already seen some activity earlier in the year with LinkedIn and Pandora and some of the more social media IPOs," he says.

"And a niche insurance software company announced yesterday that it will file for IPO. When something unfashionable like that files, you know the IPO market is starting to recover."