You'd think that Affymetrix (NASDAQ:AFFX) was a fledgling drug developer making a last-ditch effort to get funding. Its stock plummeted more than 10% Tuesday after the announcement that it was taking out a loan in the form of $275 million of unsecured senior convertible notes.

But such an assumption would be far from the truth. The Rule Breakers biochip maker has earned $0.13 per share in the last four quarters and had $250 million in cash and short-term investments at the end of last quarter. The cash infusion is certainly no last-ditch effort.

So why would Affymetrix want to double its cash position? The company says it'll use the money for one or more of the following:

  • Funding its operations (but it's making money, so let's hope not).
  • Capital expenditures (it's in the process of moving some manufacturing operations to Singapore, so this is possible).
  • Repurchasing senior convertible notes due in 2033.
  • Potential acquisitions of businesses (BINGO!).

My idea is that Affymetrix is looking to buy supplemental businesses for its recently established diagnostic operation to distinguish itself from rival Illumina (NASDAQ:ILMN). There are plenty of small, privately held companies below investors' radar that Affymetrix is probably looking into, but there are certainly some large companies that might help it branch out, as well.

Ventana Medical Systems' (NASDAQ:VMSI) automated tissue-staining system would certainly complement Affymetrix's automated approach, and it would come with a built-in sales force once its first product was available. Ventana would likely welcome another bidder to try and spur Roche to increase its lowball offer, although Affymetrix's half-billion dollars in cash wouldn't serve as much more than a down payment on Ventana.

Another choice might be Myriad Genetics (NASDAQ:MYGN), but I'm not sure Affymetrix belongs in the drug development business that Myriad has a hand in.

Whatever company Affymetrix buys -- or even if it just sits on the cash -- Tuesday's sell-off probably was not justified. It's possible investors were a little jittery from Affymetrix's soft 2006 results and lofty trailing P/E.

But investors who want shares of the comeback kid are now in the middle of a 10%-off sale.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.