Moody’s to H-P: Apple is Eating Your Lunch
The headwinds facing the personal computer industry are well-known. A growing shift towards more portable and popular gadgets is causing major headaches for several companies like Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL). However, adding insult to injury, credit rating agencies are also showing a lack of confidence for PC makers.
What is Hewlett-Packard’s Latest Blow?
Late Wednesday, Moody’s Investors Service downgraded H-P’s long-term credit ratings, including the senior unsecured rating, by one notch to Baa1, three levels above junk status. The agency previously had a rating of A3 on the debt. The Prime-2 short term rating was affirmed, but Moody’s has a negative outlook on H-P. About $25 billion of debt securities are affected by the cut.
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The lower rating is due to expectations that “although H-P will maintain strong to leading positions in a number of product areas, the company’s credit profile will remain weaker than perviously expected over the intermediate term,” explained Richard Lane, senior vice president at Moody’s. It is the second downgrade from Moody’s this year, while Fitch and Standard and Poor’s reduced their ratings on H-P last year.
Why the Negative Outlook?
Moody’s is bearish on H-P’s debt outlook, because it has doubts on the company’s “ability to contend with the significant competitive, secular and execution challenges facing the company.” A “broad portion of H-P’s portfolio, including PC’s, some enterprise servers, printers, and services, representing over 75 percent of revenue, will face slow to no growth prospects over the coming years,” said Lane. In other words, Apple (NASDAQ:AAPL) and its slew of highly popular products are causing some serious question marks for H-P and the computer industry. Other companies such as Amazon.com (NASDAQ:AMZN) and Samsung also offer tablets that are weakening demand for traditional PCs.
This was widely known by the market, but Moody’s offers little hope on the future…