Tech cash piles can be a sucker's bet - fund managers

* Fund managers warn not to be 'suckers' for cash rich stocks

* Tech companies can deplete cash in sudden acquisitions

By Tim McLaughlin

Chicago, June 22 (Reuters) - Technology investors beware: Don't be a sucker for the big piles of cash accumulating on company balance sheets.

That warning signal emerged on Friday during a panel discussion among tech-oriented portfolio managers at Morningstar Inc's investment conference in Chicago.

Tech companies can use cash responsibly to repurchase shares and pay dividends, the managers said. But for investors, that cash pile does not necessarily represent a cushion, or margin of safety, for supporting a company's share price. The value of the cash can be erased quickly, especially if a company uses the money to make an ill-chosen acquisition.

Jim Kieffer, a portfolio manager for the $700 million Artisan Value Fund, recounted how he bought Hewlett-Packard Co, partly because the tech heavyweight had about $10 billion in cash on its balance sheet for stock buybacks.

Then HP used that money to acquire Autonomy Corp Plc in October, a takeover that has disappointed investors. HP shares are off 42 percent over the past year.

"We were suckers for HP," Kieffer said during the panel discussion. "They had that money for buybacks then one day they spent $10 billion on Autonomy."

The stock market initially celebrated the deal. But that was a sign to Kieffer to exit the stock, he said.

"Be careful about valuing cash at a dollar. It can change quickly," he added.

Kieffer is not a traditional tech portfolio manager. A decade ago, his fund owned little or no tech stocks. But now, tech represents about 30 percent of his portfolio, he said, largely because he has found cheap stocks.

"I never in my career expected we would own Cisco, Oracle or Microsoft," Kieffer said. Now he does, and all at the same time. He also has scooped up tech stocks, such as Avnet Inc and Arrow Electronics Inc, at prices at or below book value.

Zachary Shafran, who manages the $2.2 billion Waddell & Reed Science & Tech Fund, said he worries about tech company executives saying they will do one thing with their cash and then turning around and do something completely different. He said that risk is everywhere in the tech sector.

"Never underestimate the power of bad management," Shafran said.

Since Shafran's start with the fund in February 2001, he has captured 75 percent of the technology category average's upside but suffered only 60 percent of its downside, Morningstar analyst Flynn Murphy said in a recent research report. The fund has averaged an annual gain of 9.77 percent over the past 10 years, outperforming 78 percent of similar funds.

Shafran agreed with Kieffer's criticism of HP's use of cash to buy Autonomy.

"This is being nice. It was just stupid," Shafran said. (Reporting By Tim McLaughlin; editing by Aaron Pressman, Bernard Orr)