Where Apple Inc. Fails, Samsung Makes an Impression
By Athena Yenko | May 2, 2014 3:24 PM EST
Apple Inc. announced during its earnings call that it has plans of using 12 billion worth of debt to support its announced capital repurchase program -- this on top of the reported $145 billion in cash pile.
Moody's Investors' Service and Standard & Poor were unimpressed as it gave the company a rating lower than what they gave to their top grades companies.
Moody's gave Apple Aa1 and S&P gave it AA+.
"You have a company that's in a highly volatile industry that could have up to $50 billion of debt five or six years down the line. Just based on that, it didn't smell like a triple-A. With consumer technology, whenever we think that this is the greatest product ever, you wait five to 10 years and that company is no longer at the top. Triple-A is reserved to companies where we believe the business is highly stable," Gerald Granovsky of Moody's told Bloomberg.
Meanwhile, Moody's gave Samsungs-moderate-1Q2014-results-in-line-with-expectations--PR_298277?WT.mc_id=NLTITLE_YYYYMMDD_PR_298277" rel="nofollow" target="_blank">Samsung Electronics Co. Ltd an A1 Positive rating as the company announced Q1 2014 earnings in line with expectations. Conversely, the company's credit level remains neutral.
Even with its "unsecure" rating, Moody's noted that Samsung continued to reflect impressive financial profile with considerations given to its credit profile.
"Despite Samsungs moderate 1Q results, its credit profile continues to reflect its strong financial profile and low leverage, as measured by adjusted debt/EBITDA which is below 0.5x, and its net cash position. These factors continue to provide significant financial flexibility which we view positively for the rating," Annalisa Di Chiara, Moody's Vice President and Senior Analyst said in a statement.
Moody's was particularly impressed that with Samsung's strong and diverse business risk profile, the company remains at par in terms of its marketshare in mobile devices, televisions and semiconductors worldwide.
"The company also benefits from being vertically integrated, particularly in semiconductors, panels and smartphones; a situation which leads to more efficient management of the supply chain and production costs. As a result, it generates above-industry average operating profits through the economic cycle. Its dominant market positions and established brand equity further remain major credit strengths that will support the company's credit profile over the medium to longer term," Di Chiara added.
According to Moody's, a downgrade for Samsung's ratings is unlikely to happen as analysts continue to see a positive outlook for the company.
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