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Moody’s Ratings Assigns Aa1 Senior Unsecured Ratings to Apple Inc


Moody’s Ratings Assigns Aa1 Senior Unsecured Ratings to Apple Inc.

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									Moody’s Ratings Assigns Aa1
Senior Unsecured Ratings to
         Apple Inc.
   April 23, 2013 Moody’s Ratings gave Apple Inc. an
Global Credit Research - 23 Apr 2013

New York, April 23, 2013 -- Moody's Investors Service ("Moody's") assigned a senior unsecured
rating of Aa1 to Apple Inc. The rating outlook is stable.


The Aa1 rating reflects Apple's position as one the world's leading providers of mobile
communications devices, tablets, personal computers, portable media players and digital content.
Although the company does not possess dominant market share in most of its segments, its brand
positioning at the higher end of its product categories, led by the flagship iPhone, and its
interrelated suite of products allows it to command premium pricing and generate outsized
returns relative to industry peers. Strong consumer demand for products such as the iPhone and
iPad has supported expansion of the company's business platform and resulted in sales growth at
a CAGR of over 110% over the past five fiscal years. Apple has a very robust financial profile with
operating margins, coverage, and cash flow metrics that compare favorably with the non-financial
companies that have Aaa ratings.
 "But, Apple's Aa1 rating is not higher (Aaa), due to Moody's view that there are inherent long-run
risks for any company with high exposure to shifting consumer preferences in the rapidly evolving
technology and wireless communications sectors," said Moody's analyst, Gerald Granovsky. "The
rapid rise and fall of new products demonstrates these sectors are particularly prone to
transformational changes that can lead to shifts in market leadership." Moody's expects the
company will continue to deliver strong operating and financial performance over the foreseeable
future based on its current products and product pipeline. The Aa1 rating also considers that the
quality of the company's products and a unique cohesion of hardware and software around its
Mac OS and mobile iOS operating systems have engendered stronger customer loyalty than has
been typical in this sector in the past. Granovsky added, "This customer stickiness creates an
effective annuity revenue stream during subsequent product refreshes. It also solidifies a large
platform of users who will be more likely to try the company's new products and services."

The rating also assumes that Apple's product refreshes continue along the same pace as in
previous years. However, the history of technology and consumer electronics industries has
consistently demonstrated that disruptive technologies will arrive and incumbents are not
necessarily the ones who will benefit. Thus, Apple's credit profile is tied to the company's ability to
keep up with innovations and maintain its unique corporate culture with its signature convergence
of design and engineering in the final products.
The rating incorporates Moody's expectations for continual strong sales growth over the next
couple of years as Apple regularly updates its devices to willing buyers and expands iPhone
distribution to new telecom carriers and new markets, although further penetration may be driven
by a mix shift toward lower end and lower gross margin products. Moody's believes the company
has ample room to grow its addressable market, as smartphone penetration is still at 50% of total
subscriber counts in developed countries, and below 15% in developing countries.

Moody's expects Apple will generate additional revenue growth from iPad sales, as tablets
continue to displace the portable PCs (notebooks, netbook and ultrabooks) in the homes, while a
budding opportunity for tablets to grab a seat in enterprise deployments could create another
new market.

On the other hand, Moody's recognizes that competition from other handset manufacturers and
strains in telecom distribution will weigh on iPhone pricing and margins. Although the telecom
carriers currently benefit from the incremental wireless data fees that iPhone customers generate,
as the pricing for wireless data service declines, the economic equation of subsidizing new iPhones
will turn more negative for the telecom carriers. This may force Apple to either lower their price to
the carriers or start taking on a greater role in financing the upfront cost of the handsets.
The company has extremely strong liquidity, underpinned by over $144 billion of cash and
equivalents at March 31, 2013. Despite Apple's announced $100 billion capital return program,
Moody's thinks that over the next few years, the company is likely to continue to maintain net
cash balances in excess of $100 billion, which is significantly more than any other non-financial
company globally. However, Moody's believes Apple's larger cash holdings and cash flow
generation relative to other leading companies presages pressure to return additional cash to
shareholders over time.

While Apple's Aa1 rating incorporates an expectation that the company will maintain a very
conservative financial policy and very strong liquidity, the rating is not reliant upon an assumption
that the company will permanently maintain an extraordinarily large cash position.

Moody's notes that the company's US cash position will decline substantially as it completes the
current capital return program by 2015, unless the US corporate tax laws are changed or the
company finds other mechanisms to repatriate the overseas cash at favorable tax rates. Given the
growing divergence of Apple's cash inflows (largely international) and outflows (largely domestic),
the company is likely to increase its debt levels if it were to extend its dividend and stock buyback

The stable outlook reflects Moody's expectations that Apple will continue to maintain and defend
its very strong market position in mobile devices and tablets as well as expand its addressable
market to new regions and carriers. The stable outlook also incorporates the expectation that
Apple will continue to maintain a very high net cash balance and a lowly levered balance sheet.
What can move the rating up
Given the industry risks inherent in the rapidly evolving technology and wireless communications
sectors, Moody's does not expect upwards rating movement over the intermediate term. Longer
term, the rating could be upgraded if Apple sustains its strong business execution and cash
generation, and there is tangible evidence that the company's ecosystem cements the users to its
products upon subsequent updates and new product introductions. Ratings could also be
upgraded if changes in US corporate tax laws or other mechanisms would allow the company to
repatriate cash on a more tax efficient basis and this leads to sustained low debt levels rather than
using debt as a vehicle to return cash to shareholders.

What can move the rating down
The ratings could face downwards pressure if there is deterioration in the company's core business
model that results in a material, sustained erosion in its very strong market positions, profitability
or cash flow generation, or management adopts substantially more aggressive financial policies
that weaken its very strong liquidity position and raise leverage significantly.
The principal methodology used in this rating was Global Technology Hardware published in
October 2010. Please see the Credit Policy page on for a copy of these

Apple Inc., headquartered in Cupertino, CA, is a leading global designer, manufacturer and seller of
premium mobile devices, tablets, personal computers, digital media players, and through its fully
integrated operating system provides a platform for its own and third party applications that
delivers mobile, digital and cloud applications and services. The company generated nearly $165
billion of revenues for the trailing twelve month period, ended December 29, 2012.

For ratings issued on a program, series or category/class of debt, this announcement provides
certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of
the same series or category/class of debt or pursuant to a program for which the ratings are
derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular rating action for
securities that derive their credit ratings from the support provider's credit rating. For provisional
ratings, this announcement provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final
issuance of the debt, in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would have affected the rating.
For further information please see the ratings tab on the issuer/entity page for the respective
issuer on

For any affected securities or rated entities receiving direct credit support from the primary
entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach
exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to
rated entity, Disclosure from rated entity.
Please see for any updates on changes to the lead rating analyst and to the
Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on for additional regulatory
disclosures for each credit rating.
Gerald Granovsky
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert P Jankowitz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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