Apple and Microsoft. The two biggest rivals of tech history. Who is going to win?
00:00 And that is the battle we’ll be discussing today.
00:25 Apple and Microsoft have battling each other for market share since the late 1970s.
And at various times, one has appeared to dominate the other.
But in recent years, some investors have begun to believe that Apple will fall behind as its iPhone becomes commoditized and Microsoft emerges as a top player in the cloud.
However, two emerging trends may give stockholders a case for sticking with Apple.
Apple has amassed the world’s largest market cap of around $2 trillion dollars,
whereas Microsoft has the second-largest market cap at $1.8 trillion dollars.
Apple holds $195.6 billion in cash on hand, offset by $112 billion in various forms of debt.
Over the trailing 12 months, it generated $80.2 billion in free cash flow.
In comparison, Microsoft holds about $132 billion in cash, against $60.5 billion in total debt.
Free cash flow for the company came in at about $50.4 billion over the previous 12 months.
01:59 Apple pioneered an entire industry through the iPhone, its largest revenue driver for more than a decade now. In time, competition from lower-cost players using Alphabet’s Android (Google as we all know it) operating system forced Apple to offer lower-cost iPhones causing the company’s overall net sales to fall.
Apple has launched the 5G iPhone 12. With the 5G iPhone’s faster speeds, Apple regained some pricing power. This has brought back some of the higher margins that supported iPhone profits in past years.
Next to that, Apple has maximized wearables sales, in part by promoting the health benefits of the Apple Watch.
Also, Apple’s services division, which includes iTunes and the App Store, has achieved notable successes with a 24% 12-month surge in revenue over the same period.
Some analysts speculate that services could generate half of Apple’s profits by the middle of the following decade.
04:39 Microsoft has also struggled for respect at times.
When Satya Nadella became CEO in 2014, he inherited a company reeling from the decline of the PC and the slowing growth of Windows.
As the previous head of Microsoft’s cloud and enterprise group, he transitioned Microsoft to a cloud focus.
This led to the company becoming the second-largest cloud provider with 15% cloud market share.
Other software supports Microsoft as well.
Microsoft 365, which constitutes its Office, intelligent cloud, and security suite, primarily drives its productivity and business processes division.
This division makes up roughly one-third of the company’s revenue, approximately the same as one year ago. Still, revenue increased 11% from year-ago levels.
Within that division, the Office 365 commercial suite surged 21% during that period, while its Dynamics 365 software, its ERP tool, registered a 38% increase for that period.
06:39 Now again, when we come down to these two tech stock companies, I believe Apple still holds the edge. The 5G upgrade cycle will force all smartphone users to eventually upgrade, supporting iPhone sales and higher margins for years to come.
Additionally, the growth in wearables and services could add to that revenue growth.
also with Apple’s rising valuation, it still trades at a slightly lower multiple than Microsoft, despite higher cash flows and profit margins.
While this success will not negate Microsoft’s bull case, it gives Apple more potential for higher returns.