Fitch: Apple’s business model is not compatible with “AA” debt Rating

Although Fitch Ratings has not released the official rating on Apple; He said today that such a rating is likely to fall in the same category of “high” rating–and would not be good enough to reach the status of “AA”.

Discussion about debt rating was prompted by comments from Apple that she may seek to tap the debt market. Although the company has a huge warchest of available cash, debt is tax breaks that can sometimes offset the cost by interest, especially at a time when debt costs are low for blue-chip companies.

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However, Fitch said that the inherent business risks that outshines the liquidity cushion in assessing long-term credit ratings for the company’s consumer-oriented hardware typically causes the rating agency assigned to the company’s long-term issuer default rating (IDR) at or below the “A” Category. This is reflected in the volatility of consumer preferences, significant competition that accelerates the commoditization of the product and the rapid development of technology.

Consumer products companies such as Sony, Nokia and Motorola mobility has proven risks associated with changing consumer tastes, the low switching costs, and highly competitive environment. Historically each has market dominance and strong financial metrics, only to falter in a relatively short period of time.

Apple better diversification and the stickiness of its iTunes ecosystem clearly make it stronger credit that is likely to be on the high end of the “A” Category.

Fitch assigns only a handful of high-technology companies in the United States “A” or “double range” with a stable Outlook, including Microsoft (AA +), IBM (A +) and Oracle (A +). All three of these companies benefit from significant recurring revenue from enterprise software and/or long-term service contracts, which usually bear the high cost of switching.

Fitch ratings will ultimately depend on the volatility of the business model, because the typical Bond investment period may extend beyond a few product cycles, and also takes into account the financial metrics and liquidity. For ratings in the category of “AA” they will insist on a higher visibility and a long time horizon for the sustainability of the company’s business model.

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