Apple (AAPL) surpassed Microsoft (MSFT) last week as the largest technology company in the United States. Apple now has a market cap of $237 billion dollars compared to Microsoft’s market cap of $226 billion dollars. Will surpassing Microsoft as the largest tech company be a sign of bad things to come for Apple? Some analysts seem to think so. There are even articles advising investors to short shares of Apple (Steve Jobs Won’t Live Forever So Short Apple Now).
Why Apple Is No Microsoft
Apple and Microsoft are like night and day. Microsoft has never been a market leader in any segment. Microsoft is slow to adapt and late to the game. Look at Microsoft’s most recent foray into the telecommunications market. With Research In Motion, Google, and Apple all dominating the smartphone market, Microsoft is now attempting to gain market share with its Windows Phone 7. Even its famed MSDOS operating system was bought from Seattle Computer Products for $50,000. Microsoft generates revenue from licensing and sales of upgrades of existing products. Microsoft has been unable to spur future growth because of a lack of innovation.
Microsoft has almost $40 billion on its balance sheet and nowhere to deploy it. Microsoft missed an opportunity to snap up smaller competitors like Palm. Microsoft has never been able to acquire Yahoo despite being interested in acquiring the search rival for years. The culture at Microsoft reflects the persona of CEO Steve Ballmer. He is a Harvard trained manager and not a product development guy.
Apple deservingly so trades at a premium to Microsoft because of its recent history of growth. Apple has the persona of Steve Jobs. He is a product guy and the reason for Apple’s focus on new product development. iMacs, iPods, iPhones, and iPads are great examples of Apple’s ability to bring new products to the market over the past decade. Apple is an industry leader whereas other tech companies are slow to catch up. Steve Jobs may be the brains behind Apple but the company has a deep bench with Tim Cook and Phil Schiller. Look at the turnaround at Palm by former Apple exec Jonathan Rubenstein. Apple has a way of selling you products that you never knew you needed until Apple made them. The iPad is a perfect example of this. I wouldn’t be willing to bet against the fact that Apple will continue to create cool new products that people want.
Look at it this way. If you had $1 million dollars to invest in either company over the next 5 years, who would you feel more comfortable placing it with? Steve Jobs at Apple or Steve Balmer at Microsoft?
Disclosure: I do not own shares of either company.
Photo by: kyz
