IT vendors are relaxing their traditionally conservative financial structures and taking on increasing amounts of debt, despite a cloud of economic uncertainty over debt markets in the US and UK.

The steady stream of revenue that IT companies receive from licence fees makes them ideal debtors but, to date, the industry has been averse to heavy borrowing.

Dell’s chief financial officer Don Carty said last week that the company expected to access capital markets to increase its financial leverage, despite predictions that the company would be cutting even more than the 8,800 jobs already announced.

Meanwhile, Oracle is offering up US$5 billion in debt to fund its $8.5 billion takeover of smaller rival BEA Systems, while even cash-rich Microsoft has said it would turn to the debt market to fund a potential $42 billion takeover of Yahoo.

Heavy borrowing leaves businesses vulnerable to corporate takeovers. Chip-maker AMD narrowly avoided financial disaster in 2006 after borrowing to acquire ATI for $5.4 billion. The company found itself under intensified competition from Intel while in a weakened state and had to be bailed out by Abu Dhabi's state-owned Mubadala Development Fund, which bought an 8.1 percent stake in the company for an estimated $700 million.

The new trend towards taking on debt in a traditionally conservative and cash-cushioned industry could mean more money to fund development and marketing, but with that money comes higher risk if the borrowing company fails to deliver.

Further reading

Dell to cut 8,800 jobs

Vulnerability seen in Oracle results

No signs of downturn from industry giants - yet