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Tuesday, August 21, 2012

Apple en route to becoming the most valuable public company ever -- will Microsoft ever catch up?

Yesterday, for a brief amount of time, Apple became the most valuable public company the world has ever seen. During Apple's rise, Microsoft has stayed in the doldrums. Can Microsoft ever catch up?
The New York Times notes that yesterday, after a jump in Apple's stock price in which it closed at $665.15, Apple had the highest market value of any public company ever --- $623.52 billion. That surpasses the previous mark set by Microsoft, at $616.34 billion, at the end of trading on Dec. 27, 1999. The Times points out that Apple's valuation is at least $13 billion higher than the combined valuations of Microsoft, Intel, and Google.
The Times notes that analyst Horace Dedue of Asymco said in a tweet that adjusted for inflation, Microsoft's late 1999 valuation is the equivalent of $850 billion today. So if you adjust for inflation, Apple is still far away from Microsoft's record high. And as I write this, Apple's stock has dropped, so it no longer takes the number one spot, even if you ignore inflation.
Dedue notes that Microsoft today is worth $258 billion -- big numbers, but well behind Apple. And it's not just in valuation that Microsoft trails Apple, but in sales as well. The Cult of the Mac notes that in the quarter ending March 31, Apple racked up $22.7 billion in iPhone sales, outselling all of Microsoft, which had $17.4 billion in sales.
Sales figures can be misleading, of course. Apple sells hardware, not software, and each iPhone or iPad sells for multiple hundreds of dollars. Software sells for much less, and so has higher margins.
Still, the numbers are indisputable. When it comes to market valuation and sales, Apple is well ahead of Microsoft.
Can Microsoft catch up? At the moment, it seems unlikely. Mobile is the future, and Microsoft continues to fail at it. Windows Phone still can't gain any traction, and the iOS juggernaut shows no signs of slowing. The iPhone 5 will likely be a spectacular seller. FBR Capital analyst Craig Berger told AllThingsD that it may sell 250 million units during its lifetime. He explains:
"We expect the iPhone 5...has the potential to generate the most promising device upgrade cycle in Apple’s history. We calculate that the device represents an opportunity to generate earnings of $50 per share throughout its life cycle. We estimate that Apple should sell 250 million iPhone 5 units at an average ASP of $575, generating nearly $144 billion in revenue, $77 billion in gross profit, and $47 billion in net income."
As for tablets, there's no end in sight to the iPad's dominance. Windows 8 is a very good tablet operating system, and in some ways better than the iPad. But I can't see it catching the iPad. Microsoft plans to manufacture 3 million Surface tablets this year, and its partners will kick in as well. But Apple sold more than 17 million iPads in the second quarter of this year, says IDC.
So for the next five or so years, at least, Microsoft can't catch Apple. And five years is about as far as anyone can see in technology -- and even that's a stretch.


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