Credit rating agency Fitch Ratings has questioned the high credit ratings assigned to the consumer electronics giant Apple ahead of its return to the debt capital markets, warning that its business risks outweigh the benefits its huge cash holdings
Apple is set to issue about $15 billion to $20 billion of bonds per annum for the next three years to finance a $100 billion return of capital to shareholders after it faced pressure to return some of its cash pile to investors.
Apple has asked Goldman Sachs and Deutsche Bank to open discussions with investors ahead of a bond issue, Bloomberg news reported.
Rating agencies Standard & Poor's and Moody's placed high AA+ and Aa1 credit ratings to Apple, but Fitch, which does not formally rate Apple, says it would assign a lower rating in the high single-A 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," Fitch said in a note to clients.
"This reflects the volatility in consumer preferences, significant competition that accelerates product commoditisation, and rapid evolution of technology."
Fitch says consumer product companies like Sony, Nokia and Motorola have proved that these businesses are exposed to changing tastes 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," Fitch says.
The rating agency did, however, point out that Apple was better diversified by virtue of its iTunes music-sharing, purchase and playing platform.
Fitch's highest-rated technology company is Microsoft at a AA+ rating. IBM and Oracle are rated 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," the agency said,
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