Wall Street has called the end of an era and the beginning of the next one: The most important technology product no longer sits on your desk but rather fits in your hand, the NY Times reports.
Apple Inc., the inventor of the iPod, iPhone and iPad, has become the world’s biggest technology company – eclipsing arch-rival Microsoft in size, according to the Daily Telegraph (UK).
The California-based company’s shares rose 1pc, taking its market value to more than $222bn by close of trading in New York on Wednesday. This edged it ahead of Microsoft, which has a market capitalisation of $219bn, and put it in second place behind the world’s largest company. The oil giant is worth $282bn.
The companies have comparable revenue, with Microsoft at $58.4 billion and Apple at $42.9 billion. But in their most recent fiscal years, Apple had net income of $5.7 billion, while Microsoft earned $14.6 billion.
Microsoft has more cash and short-term investments, $39.7 billion, to Apple’s $23.1 billion, which makes the value assigned by the market to Apple, essentially a bet on its future prospects, all the more remarkable.
Apple almost went out of business in the 1990s, but has enjoyed a resurgence based on the popularity of its stylish devices targeted at young technology fans. Its MacBook laptops, touch-screen iPhone mobile phones and iPod music players have seen profitability rise to record levels. Its value has increased 10-fold over the last decade.
Microsoft, the software company, still makes the dominant operating system for 90pc of the world’s computers. However, its Windows software has increasingly been challenged by rival programme and system makers.
The New York Times reports: “Microsoft, with its Windows and Office software franchises, has dominated the relationship most people had with their computers for almost two decades, and that was reflected in its stock market capitalization. But the click-clack of the keyboard has ceded ground to the swipe of a finger across a smartphone’s touch screen.”
Steve Jobs, the chief executive of Apple credited with its transformation, said last month that sales rose by 50% on demand for the iPhone. It is expected to increase profitability even more this year on strong sales of its iPad.
The new gadget went sale after the close of the second quarter and will be launched outside the US market later this week. Apple sold more than 1 million iPad tablets in the first month after it hit the shops in early April, with demand outstripping supply.
Microsoft depends more on maintaining the status quo, while Apple is in a constant battle to one-up itself and create something new, said Peter A. Thiel, the co-founder of PayPal and an early investor in Facebook. “Apple is a bet on technology,” he said. “And Apple beating Microsoft is a very significant thing.”
Microsoft’s chief executive, Steven A. Ballmer, shrugged off the shift Thursday morning. “No technology company on the planet is more profitable than we are,” he said in New Delhi, where he had come to tout Microsoft’s cloud computing plans. “On any given day, the stock market is a voting machine,’’ he said, and only ‘‘in the long run is it a weighing machine.”
However, Apple faces a new and powerful rival in Google, which is battling Apple in mobile devices with its Android OS, and mobile advertising.
Google, with a market cap of $151.43 billion, also appeared to leap ahead of Apple in a new potentially important area, Internet-based Tv. And Google is steering consumers toward yet a new model of computing in which Internet applications, rather than iPhone or desktop applications, rule.
“The battle has shifted from Microsoft against Apple to Apple against Google,” said Tim Bajarin, a technology analyst who has been following Apple since 1981. “Apple has a significant lead. But Google is going to be a powerful competitor.”
Apple and Microsoft initiated the personal computing revolution in the late 1970s, but Microsoft quickly outflanked Apple and grew to be one of the most profitable businesses ever created.
A little more than a decade ago, Apple, which had pushed out Mr. Jobs in 1985, was widely believed to be on the path to extinction. But with the return of Mr. Jobs to Apple in 1996 — and an investment by Microsoft of $150 million — the company began a slow path to recovery.
Apple’s rebirth began in earnest with the introduction of the iPod music players, and Mr. Jobs began to gain a reputation for anticipating what consumers want. The company elbowed aside Sony and came to dominate the music distribution business with the iTunes online music store.
It later upstaged Nokia, the dominant brand in mobile phones, by introducing the iPhone in 2007. And this year, Mr. Jobs shook things up again, with the introduction of the iPad, a tablet computer that has the potential to create a new category of computers and once again reshape the way people interact with their devices.
As Apple grew increasingly nimble and innovative, Microsoft has struggled to build desirable updates to its main products and to create large new businesses in areas like game consoles, music players, phones and Internet search. Microsoft, which is a component stock of the Dow Jones industrial average, has lost half its value since 2000.
Mr. Ballmer said Thursday that while Microsoft has “some very good competitors,” the company is a very good competitor itself. Yet Mr. Ballmer seemed to concede that Microsoft needs improvement in some areas.
Still, Microsoft is a hugely powerful and profitable company in the tech world. Its Windows software runs 9 out of every 10 computers, while more than 500 million people use its Office software to perform their daily tasks, like writing letters or sending e-mail messages. These two franchises account for the bulk of Microsoft’s annual revenue.
But Apple has the momentum. “Steve saw way early on, and way before Microsoft, that hardware and software needed to be married into something that did not require effort from the user,” said Scott G. McNealy, the co-founder and longtime chief executive of Sun Microsystems. “Apple’s products are shrink-wrapped and ready to go.” [via Telegraph (UK), Yahoo News and NY Times]