Could Microsoft Corporation Beat Apple Inc.?
With last quarter’s breakout performance, Microsoft Corporation (NASDAQ:MSFT) showed a renewed sense of purpose. The outline of a firm strategy appeared, lifting MSFT stock and posing a threat to the world’s largest company, Apple Inc. (NASDAQ:AAPL).
These two firms have a long and tangled history. Bill Gates and Steve Jobs, the two iconic founders of Microsoft and Apple, had a tense rivalry that stretched into legend. For a long time, it looked like Bill Gates had emerged the victor. MSFT stock was a red-hot commodity during 1999 and 2000, crowning Microsoft as the most valuable company on the planet. At the time, the total dollar value of Microsoft stock was about $510 billion, while Apple was only worth $4.8 billion. (Source: “Microsoft’s Lost Decade,” Vanity Fair, July 31, 2012.)
The numbers haven’t exactly inverted since then, but they have shifted massively in Apple’s favor. By chopping off non-core functions and zeroing in on the “iPhone,” Steve Jobs was able to resurrect AAPL stock as a premiere asset in the technology space. Apple became the most valuable company in the world, valued at roughly $700 billion, while Microsoft slipped to third place, with a market cap of $434.1 billion. The maker of “Windows” and “Office” constantly seemed as if it was two steps behind the rest of Silicon Valley.
However, the “Surface Pro” is breathing new life into Microsoft stock.
Surface Pro Could Dethrone Apple’s iPad
The ebb and flow of business stops for no company, as Apple will soon discover. While I still think that Apple is a great company and can achieve amazing things, Microsoft poses a serious threat to Apple in the tablet market.
It’s no secret that “iPad” sales have been lagging for a long time now. Year-over-year sales are down by more than 23%, which is a serious blow to Apple. (Source: “Apple Form 10-K Filing,” Securities & Exchange Commission, October 28, 2015.)
Mobile devices are the company’s bread and better and integrating smartphones, tablets, and wearable technology is part of the long-term plan to lock in customer loyalty, yet Apple couldn’t keep up its growth.
Part of the reason is that the iPad is stuck in no-man’s land, between the iPhone and the “MacBook.” It isn’t functional enough to replace a laptop, nor is it mobile enough to replace a smartphone. The end result is that it’s become a screen for watching videos—that’s it.
At the time of the iPad’s release, this conundrum could have posed a problem for all tablet makers. After all, even though iPad sales were stalling, Apple still led the pack. But the Surface Pro from Microsoft has changed all that by offering customers a two-in-one device.
The Surface Pro looks like a notebook at first blush, but then it comes apart from the keyboard to let the user walk around, using it like a tablet. Actually, not like a tablet, it is a tablet. The Surface Pro is quite literally the best of both worlds.
Why MSFT Stock Could Surge
Revenues from the Surface Pro doubled between the first quarters of 2014 and 2015, reflecting two deep trends in the hardware market. People are buying fewer tablets and fewer personal computers; those are the facts. (Source: “Microsoft Form 10-Q Filing,” Securities & Exchange Commission, October 22, 2015.)
Now that doesn’t mean that everyone is adopting an Amish lifestyle, it just means they don’t want to duplicate their devices. If I can watch a show on my tablet, then plug it into a keyboard and have it operate as smoothly as a laptop, I wouldn’t need a second device.
Microsoft has successfully engineered a device that hits that sweet spot and Apple has not. That fact is finally starting to show in the earnings report, which means that MSFT stock may be headed back to the top spot.