Apple Computer Inc’s year-end figures have not gone down well with Standard & Poor’s Corp, which has revised its rating outlook to negative from stable, reflecting concerns about the company’s recent profitability levels and its longer-term ability to achieve market share objectives – but it did affirm its triple-B senior debt and A-2 commercial paper ratings on the company. About $300m of rated debt is affected. The rating reflects Apple’s ongoing strategic challenges in the personal computer industry, offset by the strong balance sheet, financial flexibility, and history of innovative productdevelopment. Licensing initiatives aimed at expanding Apple’s 8% 1994 worldwide market share to a 20% worldwide target have been disappointing to date, and without an expanded market base, it will be increasingly difficult for Apple both to maintain its own software development, and attract third party developers of desirable applications.Although revenue and unit growth were in excess of 20%, operating margins dropped to 3% in the most recent quarter. Operating profitability in the near term is expected to improve, but will remain below 8%, reflecting ongoing pricing pressure. Apple’s rating could be lowered if profitability remains subpar for the rating level or if the company fails to demonstrate progress in achieving its market share goals. Downside cushion is provided by the balance sheet and financial flexibility.
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