Apple Computer Inc has taken a beating from Standard & Poor’s Corp, which downgraded its senior debt to tripe-B from A-minus, reflecting highly competitive personal computer industry conditions, the company’s prospective lower-than-historical levels of profitability, and ongoing strategic and product transaction challenges. Apple’s commercial paper wsa affirmed at A-2 and about $800m of rated debt is affected. The ratings outlook is now stable. Severe, industry-wide pricing pressures forced Apple effectively to eliminate its historical price premium and lower its cost structure, the rating agency said. Although the company restored profitability after third quarter 1993 restructuring charges and successfully managed the initial stages of the product line transition to PowerPC, significant challenges remain, the rating agency said. Despite the positive year-to-date trends in gross margins and profitability, which are likely to continue, Standard & Poor’s does not expect current operating margins – at 7.0% – to approach historical levels, which exceeded 15.0%. Nevertheless Apple is expected to maintain its solid investment-grade rating based on a strong market position, innovative product development, and good balance sheet, although rating improvement is limited by the ongoing challenges of Apple’s product transition and strategic goals, the agency concluded.
