Everyone loves an underdog. This was part of the rallying cry that brought Apple back from industry slug, to industry powerhouse. Remember the Mac v. PC commercials? The Apple ad campaign that took a direct shot across the bow of Microsoft's core business. Couple that ad campaign with the recent rise of Apple and Google into the smartphone market and the 21st century battle for technological supremacy appears to have entered a new dimension. The stakes are high, the competition ferocious and only those with endurance will prevail.
The forerunner at this point in the battle appears to be Apple. Proponents of this belief suggest that a changing of the guard has occurred at the top of the tech industry since Apple overtook Microsoft as the largest technology company based on market cap. Simply put, market capitalization is the share price of a company multiplied by the number of outstanding shares. The value of the share price is predicated not only on a company's performance to date, but more importantly for investors, the future prospects for growth. The net result of this market cap evaluation would be that investors believe that Apple has better prospects for future growth then Microsoft. More importantly for investors however is the forward looking Price-to-Earnings Ratio. In simple terms, the P/E is used as a price at which investors can expect a return on their money. So if a P/E is 20, it means an investor is willing to pay 20$ for every 1$ of revenue the company is expected to make. A hi P/E would indicate that investor believe the company will have higher earnings growth in the future. However the P/E cannot be taken out industrial context because over the longer term and eventually every company is bound to fall back into the floating average. Higher growth implies a solid research pipeline, with great R&D prospects and no major managerial disruptions.
The battle for the smartphone market does not solely revolve around the phone. If not more importantly then the phone are the accessories and services that are based around the product and Microsoft is much better positioned to take advantage of the services that surround the smartrphone then any of the competitors. Microsoft's near corporate monopoly over office software provides the tech giant with the infrastructural advantage that neither Apple nor Google can contend with. The ability to have your mobile device interact with every PC in your life is an advantage that cannot be overlooked or underestimated.
As any historian will point out, 'One battle does not a war make'. Microsoft V. Apple (paradon me Google); we have seen this fight before in the Macintosh V. Windows battle of the early 90s. Round 1 went to Microsoft. When the dust settled, it was a unanimous decision. Yet again, two decades later, after Microsoft invested 150M US into its former adversary in 1998, we are treated to Round 2. Same companies, same industry. The only difference this time is that Microsoft has a massive advantage and giant head start.
The key to long term success is endurance, the resources to survive downturns, and the will to re-invent oneself. No other company demonstrates this paradigm better then General Electric; an industrial leader across numerous industries and corporate powerhouse since 1896, when it was one of the original 12 stocks listed on the then newly created Dow Jones Industrial Average. GE has survived world wars, a plethora of recessions, industry and global downturns, consumer shifts, corporate trends, political changes and every other known factor of the global economic environment to remain the 2nd largest company in the world as of 2010, 114 years after it first became a public company.
The forerunner at this point in the battle appears to be Apple. Proponents of this belief suggest that a changing of the guard has occurred at the top of the tech industry since Apple overtook Microsoft as the largest technology company based on market cap. Simply put, market capitalization is the share price of a company multiplied by the number of outstanding shares. The value of the share price is predicated not only on a company's performance to date, but more importantly for investors, the future prospects for growth. The net result of this market cap evaluation would be that investors believe that Apple has better prospects for future growth then Microsoft. More importantly for investors however is the forward looking Price-to-Earnings Ratio. In simple terms, the P/E is used as a price at which investors can expect a return on their money. So if a P/E is 20, it means an investor is willing to pay 20$ for every 1$ of revenue the company is expected to make. A hi P/E would indicate that investor believe the company will have higher earnings growth in the future. However the P/E cannot be taken out industrial context because over the longer term and eventually every company is bound to fall back into the floating average. Higher growth implies a solid research pipeline, with great R&D prospects and no major managerial disruptions. Big Three
According to a recent article in businessweek ("Mobile Wars") Apple spent 1.8B US on R&D in 2010; while MSFT spent 9.5B US on R&D in 2010, Google Spent 5.5B US in 2010. One contributing factor to the discrepancy in the budgetary difference is that fact that MSFT has a much deeper and longer term pipeline then the other two. Put a different way, Microsoft still spends 5 times as much on R&D then Apple, and almost twice as much as Google. So while some may believe that Apple has all but surpassed Microsoft, according to Forbes Magazine top 2000 companies, Microsoft still ranks 25 spots higher then Apple.
Looking at the line of Apple products, it is not difficult to deduce why it spends so little on R&D compared to revenue or industrial competitors. If you accept "Moblie Wars" premise that the Ipad is just an over sized Ipod touch, then you can also deduce that the Iphone is just a tweak or two away from the the Ipod. This R&D strategy of slight tweaks to existing technology or products is not a long term strategy that most analysts would recommend. Comparatively, Steve Jobs health has been diminishing over the last few years. The company that he co-found has already demonstrated a lack of ambition and foresight in his absence. It cannot be predicted what may happen to Apple when, not if, Steve Jobs leaves his position, but we know where Microsoft is headed without its co-founder running the show.
Smartphone Market
Apple is apparently leading the way to a new era in cell phone technology. Apple has less then 15% market share in the smart phone industry. Nokia, still the global leader controls between 38-40%, RIM is at 18-22%. It is always easier to grow by large numbers as the small guy. And while Apple's growth is phenomenal, Nokia was able to increase its quarterly shipment numbers by the same amount Apple shipped in total.
Now add the fact that later this year Nokia is going to phase out its own operating system and in its place will be the new Windows OS and any prospect investor should really start to think twice. Much like Microsoft's first foray into the software industry many years ago when it used Apple, Dell and HP computers as platforms for its PC windows software, so too will it use Nokia as a distribution platform for its newest piece to its global software empire.
The battle for the smartphone market does not solely revolve around the phone. If not more importantly then the phone are the accessories and services that are based around the product and Microsoft is much better positioned to take advantage of the services that surround the smartrphone then any of the competitors. Microsoft's near corporate monopoly over office software provides the tech giant with the infrastructural advantage that neither Apple nor Google can contend with. The ability to have your mobile device interact with every PC in your life is an advantage that cannot be overlooked or underestimated. "You May Have Won the Battle But..."
As any historian will point out, 'One battle does not a war make'. Microsoft V. Apple (paradon me Google); we have seen this fight before in the Macintosh V. Windows battle of the early 90s. Round 1 went to Microsoft. When the dust settled, it was a unanimous decision. Yet again, two decades later, after Microsoft invested 150M US into its former adversary in 1998, we are treated to Round 2. Same companies, same industry. The only difference this time is that Microsoft has a massive advantage and giant head start. The key to long term success is endurance, the resources to survive downturns, and the will to re-invent oneself. No other company demonstrates this paradigm better then General Electric; an industrial leader across numerous industries and corporate powerhouse since 1896, when it was one of the original 12 stocks listed on the then newly created Dow Jones Industrial Average. GE has survived world wars, a plethora of recessions, industry and global downturns, consumer shifts, corporate trends, political changes and every other known factor of the global economic environment to remain the 2nd largest company in the world as of 2010, 114 years after it first became a public company.
Microsoft has positioned itself to become the 21st century equivalent of GE. Constantly researching and developing new products for entrance into new markets and different industries, having the wherewithal to survive recessions and market downturns, expanding the core business not at the expense of, but in complement to, its other pursuits.
At this point in the war for technological supremacy in the 21st century, Apple has demonstrated nothing more then its ability to create and upgrade consumer discretionary products, while Microsoft has developed a global technological empire that reaches every corner of the globe..... and is still growing.
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