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Sept. 14, 2019, 11:01 a.m. EDT

The $1 trillion companies: Microsoft is still bigger and better than Apple

Microsoft’s key businesses are growing, and Apple has an innovation problem

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By Daniel Newman


MarketWatch photo illustration/Getty Images, iStockphoto

Late last year as Apple, Amazon, and Microsoft were trading the top spot for world’s most valuable company, I wrote about why Microsoft was the best positioned to solidify its position as No. 1.

One year later and Microsoft /zigman2/quotes/207732364/composite MSFT +0.21% is still on top; its current market capitalization is sitting around $1.05 trillion while Apple /zigman2/quotes/202934861/composite AAPL +0.44% moved back above $1 trillion Wednesday.

While these numbers are closer than they have been in the past three months, there is no question that Microsoft is better positioned to remain on top. Apple’s latest product launch serves as a strong testimonial to why this is the case and why Microsoft looks like the better long-term bet for investors.

I have been vocal over the past year about Apple’s innovation issues. The company is struggling to come up with anything new or original and has instead turned to copying and/or iteration to develop new markets. I have previously highlighted that the new iPhones, iPads, and MacBook have been nothing more than iterative over the last few launches. Tuesday’s unveiling was no different, as it delivered nothing surprising and nothing inventive. Instead it was personified by small changes the company nonetheless hopes will inspire customers to part with hard-earned dollars for an almost identical device and user experience.

Read Therese Poletti: Apple iPhone event reveals a dramatic change in strategy

True, Microsoft and Apple aren’t direct competitors in many of their core technology products and solutions. The growing popularity of the Microsoft Surface laptop has led to some competitive instances with iPad and MacBook, but the companies are largely approaching the broader market in different ways. It is because of these differences that Microsoft is far better positioned to maintain its lead.

Difference 1: Apple’s biggest profit and revenue source is declining while Microsoft’s is growing.

This past year, Canalys marked Apple’s iPhone sales down 17% for the year. The signs of slowing continue with the iterative launch and the lack of a 5G offering. Its most compelling growth areas have been AirPods ( 60% of market, per Counterpoint ) and Apple Watch ( 46% of market, per Strategy Analytics ), but the margins on those aren’t nearly as lucrative as the iPhone. Meanwhile, Microsoft Azure has seen over 60% growth in each of the past four quarters and its Dynamics 365 CRM business, is also growing over 40%. Surface is growing at a 14% clip year over year as it continues to gain momentum.

Difference 2: The markets for Enterprise SaaS, Cloud, and AI are screaming opportunities, while Consumer Subscription Services are quickly becoming oversaturated.

Microsoft is a recurring revenue machine for enterprise and consumers with its productivity suite of services. It is also at the heart of the Big Data and Artificial intelligence evolution, with Azure and Power Platform, as well as a growing Dynamics 365 business in enterprise CRM. These businesses will power the future of AI and automation and has a certain amount of recession resilience.

Apple is a luxury product that has ridden a decade of growth, and its continued growth is dependent on users buying the most expensive, semi-outdated devices based upon brand affinity and/or subscribing to a set of crowded consumer services where people aren’t clamoring for anything new.

Difference 3: Microsoft has already made the services pivot, while Apple is still midstream in its transformation.

With over a billion subscribers to 365, combined with a robust and quickly-growing infrastructure-as-a-service business (Azure) that is the only company in the space taking market share from Amazon.com /zigman2/quotes/210331248/composite AMZN -0.24% , Microsoft is well beyond the pivot point.

Meanwhile, Apple is still testing the waters with Arcade, TV Plus, Apple Credit Card, and Music Services, all of which have significant competitors (Spotify /zigman2/quotes/207488629/composite SPOT -0.39% , Netflix /zigman2/quotes/202353025/composite NFLX +0.29% , Amazon) that are much further along in terms of product and market growth.

Difference 4: Microsoft’s CEO is a dynamic risk-taker while Apple’s CEO is playing it safe.

/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 139.97
+0.29 +0.21%
Volume: 5.01M
Oct. 14, 2019 11:55a
P/E Ratio
27.60
Dividend Yield
1.46%
Market Cap
$1066.51 billion
Rev. per Employee
$902,473
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 237.26
+1.05 +0.44%
Volume: 12.09M
Oct. 14, 2019 11:55a
P/E Ratio
20.24
Dividend Yield
1.30%
Market Cap
$1067.48 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,727.68
-4.24 -0.24%
Volume: 816,947
Oct. 14, 2019 11:55a
P/E Ratio
71.67
Dividend Yield
N/A
Market Cap
$856.71 billion
Rev. per Employee
$359,671
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/zigman2/quotes/207488629/composite
US : U.S.: NYSE
$ 115.04
-0.45 -0.39%
Volume: 203,099
Oct. 14, 2019 11:55a
P/E Ratio
74.41
Dividend Yield
N/A
Market Cap
$20.38 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 283.74
+0.81 +0.29%
Volume: 2.39M
Oct. 14, 2019 11:55a
P/E Ratio
111.18
Dividend Yield
N/A
Market Cap
$123.88 billion
Rev. per Employee
$2.22M
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