Fitch Doesn't See Apple (AAPL) with 'AA' or Better Rating
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Fitch has not released a public rating on Apple (Nasdaq: AAPL); such a rating would likely fall in the high single 'A' rating category. Inherent business risk that overshadows a significant liquidity cushion when evaluating long-term credit ratings for consumer-centric hardware companies generally leads us to assign these companies a Long-Term Issuer Default Rating (IDR) at or below the 'A' category. This reflects the volatility in consumer preferences, significant competition that accelerates product commoditization, and rapid evolution of technology.
Consumer product companies such as Sony, Nokia, and Motorola Mobility have proven the risks related to ever-changing consumer tastes, low switching costs, and a highly competitive environment. Each has historically had a dominant market position and strong financial metrics, only to falter over a relatively short period of time.
Apple's better diversification and the stickiness of its iTunes ecosystem clearly make it a stronger credit that would likely be at the highest end of the 'A' category.
We rate a handful of U.S. technology companies in the high 'A' or double 'A' range with a Stable Outlook, including Microsoft (AA+), IBM (A+), and Oracle (A+). All three of these companies benefit from substantial recurring revenue from enterprise software and/or long-term IT services contracts, which typically carry high switching costs.
Fitch's ratings ultimately hinge on the volatility of a business model, since the typical bond investment period can extend beyond several product cycles, while also considering financial metrics and liquidity. For ratings in the 'AA' category, we would insist on higher visibility and a longer time horizon regarding the sustainability of a company's business model.
Consumer product companies such as Sony, Nokia, and Motorola Mobility have proven the risks related to ever-changing consumer tastes, low switching costs, and a highly competitive environment. Each has historically had a dominant market position and strong financial metrics, only to falter over a relatively short period of time.
Apple's better diversification and the stickiness of its iTunes ecosystem clearly make it a stronger credit that would likely be at the highest end of the 'A' category.
We rate a handful of U.S. technology companies in the high 'A' or double 'A' range with a Stable Outlook, including Microsoft (AA+), IBM (A+), and Oracle (A+). All three of these companies benefit from substantial recurring revenue from enterprise software and/or long-term IT services contracts, which typically carry high switching costs.
Fitch's ratings ultimately hinge on the volatility of a business model, since the typical bond investment period can extend beyond several product cycles, while also considering financial metrics and liquidity. For ratings in the 'AA' category, we would insist on higher visibility and a longer time horizon regarding the sustainability of a company's business model.
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