Apple announced during its earnings call on Thursday that it will no longer adhere to the net cash neutral policy it has followed since 2018. This policy was designed to reduce the company's cash levels by maintaining a balance between cash holdings and debt. Analysts are now focusing on the potential impact of this change on the company's credit profile.
CrediSights analyst Jordan Chalfin noted that the explanation provided by Apple's Chief Financial Officer regarding the objective of this move was somewhat vague. The new policy could lead to an increase in the company's cash reserves or potentially result in higher debt levels.
"The risk is that a new CEO might ramp up investments in artificial intelligence, including organic growth and/or mergers and acquisitions, which could be funded through debt issuance while still maintaining shareholder returns. Therefore, it is possible the company could transition to a net debt position at some point," Chalfin wrote in a report on Friday.
Bloomberg Intelligence credit analyst Robert Schiffman expressed his understanding that the company is generating excess cash and wishes to retain a portion of it without necessarily increasing stock buybacks or taking on additional debt.
In the most recent quarter, Apple's cash and cash equivalents increased, while stock repurchases decreased and debt levels remained largely unchanged.
Apple aims to maintain a strong balance sheet to ensure greater flexibility in the future. In the short term, the company remains cautious about making large-scale investments in artificial intelligence.
During Thursday's call, Apple CFO Kevan Parekh stated, "Net cash neutral has been an important framework for our capital structure; since 2018, we have significantly optimized our balance sheet, reducing net cash by over $100 billion. Looking ahead, we will no longer treat net cash neutral as a formal target and will instead evaluate cash and debt separately."
Parekh mentioned that as of the end of the second fiscal quarter, Apple's net cash stood at $62 billion, having decreased by over $100 billion from previous levels. He added, "Capital returns will continue to play a key role in our overall strategy, and we remain committed to creating long-term value for shareholders."
Beyond Parekh's existing remarks, a company spokesperson declined to provide further comment.
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