Anyone Who Thinks Apple's Bonds Are As Safe As Government Bonds Is Hallucinating

Apple is borrowing $17 billion today.

Demand for these “iBonds,” as they are affectionately known, is off the charts. The scuttlebutt is that investors are so stoked about lending money to Apple that the size of the deal is affecting today’s market for government bonds (which is absolutely massive–trillions of dollars).

Lending money to Apple certainly does seem like a safe bet, at least as far as lending money to any technology company goes.

But I heard on Bloomberg Radio this morning that some investors are complaining that Apple’s long-term debt didn’t get the highest possible rating from the rating agencies–“AAA.” And someone else was suggesting that Apple’s bonds are basically as safe as government bonds.

To the extent that there are actually folks out there who think that Apple’s bonds are as safe as government bonds, I have a few charts for you.

The first chart shows the profits of global handset makers over the last five years. 

You will notice that two companies on the chart are doing very well–Apple and Samsung. They are doing so well, in fact, that some investors apparently think that the bonds of one of the companies, Apple, are as safe as U.S. government bonds.

But the line I want you to focus on in the chart is actually headed in the other direction. It’s the purple line that started out high on the left and is now bumping along the bottom.

That line is Nokia.

Future of digital mobile profits

Five years ago, when I wrote a post suggesting that Nokia might want to worry a bit more about the iPhone, some readers ridiculed me. Oh, you silly little American boy, the cat-calls went, you and your cute little Apple can’t even begin to understand how dominant Nokia is worldwide. Nokia is mobile phones. Nokia will crush Apple. Etc.

Keep that purple line in mind and then check out this next chart.

This next chart is the chart of a formerly red-hot gadget company called BlackBerry. Five years ago, everyone thought BlackBerry would take over the world. Now the stock is trading in the teens. 


And now here’s a chart of Palm, another formerly red-hot gadget company.

Palm (PALM) stock chart

You get the point.

The point is this:

There’s really no such thing as “long-term investing” in technology. At least not when “long-term” is defined in terms of decades and not years.

In only 6 months, Apple has already gone from being on top of the world to being mired in the midst of a massive collapse. The stock has fallen from a high of $702 in September to a recent low of $385.

And that’s 6 months.

A year or two down the road, Apple might have completely recovered. Or it might actually be in real trouble.

And 10 years down the road?

10 years is so long in the technology industry that it’s barely even worth contemplating.

And 30?

If you think lending money to Apple for 30 years is perfectly safe, here’s another example to keep in mind:

25 years ago, Apple was on top of the world (for the first time).

Then, 15 years ago, only 10 years after being on top of the world, Apple almost went bankrupt.

You can make all the jokes you want about how the U.S. government is running an unsustainable budget deficit and that the country’s broke, etc. But the U.S. government has something that even Apple will never have: A money printing press.

Unless the world completely goes to hell, in which case we have other things to worry about, the U.S. government will pay back its debts, even if the value of the dollars that it pays them back in has collapsed.

Will Apple be financially healthy enough to pay back its debts in 30 years?

We shall see.

It might be healthy enough.

But there’s a distinct possibility that it might not be.

And anyone who tells you otherwise should take a look at the charts above.

SEE ALSO: The Bull Case For Apple

Disclosure: A couple of weeks ago, I bought Apple stock.

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