Apple, Google, Microsoft: A Tale of Three Earnings Reports

The differences between last quarter earnings for Apple (AAPL), Microsoft (MSFT) and Google (GOOG) are striking.

Apple beat by a mile. And it was expected, I don't understand analysts who accept a company's projections at face value. Google beat, which is no small feat for a company which gets almost all its revenue from advertising. Microsoft missed.

If we were looking at companies by business description, the results would look strange. The economy is in a crisis. We have a company which makes retail goods beating expectations. We have a company living by advertising beating expectations. And we have a monopoly, which should be much less sensitive to the economic environment, missing.

But things are not what they seem. These companies actually have quite different business descriptions. Apple's business is to make the cutest, the easiest to use consumer electronic devices, which become instant fashion once they hit the shelves. Apple is Christian Dior of electronics. The company first made computers easy and fun to use, then moved to other electronic devices.

Google's business is to organize the world's information- nothing less. And they are successful; they are doing it much better than anybody else. Being the geekiest company in the world helps as well.

As for Microsoft... can you describe Microsoft's business in one sentence? "Rule the world" doesn't cut it, ruling is not a business, and competition is way too stiff. "Make all kinds of software which you can sell"? If that's the business, the company is not very good at it, once they meet good competition, they are number 2 at best (in databases after Oracle (ORCL), in publishing after Adobe (ADBE) and Quark). And Microsoft's Web business doesn't fit in this description, no wonder it's wasting close to half a billion every quarter now.

I have my doubts about Apple, wrote about it several times. I still think that Steve Jobs is too big a part of a company and without him it might eventually lose it's fashion value. But it's still one of the greatest companies in the world. I have an admiration for Google, which found a goldmine on the Web and is making it bigger every day.

I don't have any doubts about Microsoft anymore. This is dead company walking. The only way to save it is to split it, as I proposed here. The only problem is that the company is not lead by businessmen, it's lead by control freaks. They would die sooner than split company.

Full disclosure: At the time of publication author had long positions in AAPL and GOOG and no positions in other companies mentioned. Positions can change any time.

Comments

[Timeline St...:]

I don't know enough about fashion to know why Apple should be compared to Christian Dior, but I feel that highlighting them as a fashion trend does a disservice to the tremendous foresight they use when designing products and interfaces.

What I do know is that their business model is to look for an opportunity to disrupt an existing business, by using software that makes well-designed hardware much easier to use. That's what they did with iTunes/iPod, that's what they are doing with their OS X mobile/iPhone, and that's what they are doing with Mac.

Due to Microsoft's stumbles (that's what you get for putting a huckster salesman in charge of a tech company), Apple is positioned to baptize an entire generation of new users who will have minimal exposure to Windows or other operating systems.

While Apple is obviously stronger if they have at least the counsel of Steve Jobs, they have more than enough opportunity to grow earnings - and thus share price - for the next 3-5 years with or without him.

Jan 25 02:16 PM

[Bonemesly:]

What sets Apple and Google apart from Microsoft is, in a word, innovation. MSFT is the beta to these companies' blue-ray!

Jan 25 02:46 PM

[e1618978:]

Steve jobs is already priced out of AAPL stock, in fact - a 5 year depression is priced into AAPL stock. I just don't see a safer investment than AAPL anywhere - the company is solid and continues to grow (the stock is a wild ride, but the actually company is a consistent performer), and the valuation is crazy low.

I just wish that Microsoft had bought Yahoo two years ago, then the combined entity would be dead next year instead of dead 10 years from now.

Jan 25 04:35 PM

[deep:]

I think that Apple is priced for the current economy, and will soar when they reveal the next big thing.

I just hope they have the next big thing in their possession... the iRocket, the iParticleAccellerator, the iEye for people that want telescopic/x-ray vision?

Jan 25 05:17 PM

[krenshaw:]

the iEye, brilliant! that one gave me a chuckle, thank you for that.

but I tend to disagree with what most people are saying on the net that Microsoft is a walking dead. I remember when intel had the P4 out and AMD was whipping there asses with their Athlons and X2s and the majority who really has no foresight said "intel is a walking dead", then here intel brought the Core2 duo and reinvented itself.

same I believe Microsoft will re-invent itself.
I laugh at those who predict doom and gloom towards Microsoft.
there is no need for the company to break up. it's not like the company is not making profit, they made profits in billions but misses what they projected to make by $500m. has anyone thought about the numerous expenses they undertook? new data centers, expansions, etc?
if they didn't make any money and actually lost $500m then the doom and gloom would of been right on the money.

and yes, Microsoft is innovative: sync, surface, office ribbon, etc.

Jan 25 06:19 PM

[LongAAPL:]

To sum up Microsoft's business model in one sentence:

Nobody really wants us, but everybody needs us.

Time will tell just how wrong they are.

Jan 25 06:48 PM

[igggy:]

I also disagree that Microsoft is a dead company. Yes, the people at the top are not the brightest bulbs in the world but what Microsoft does best is taking somebody else's good idea, re-implementing it as a Microsoft product and then finding a way to convert almost everyone to use it. They've actually become somewhat more innovative lately (xBox comes to mind).

I like to say (and many people agree with me) that the only good and original Microsoft products are the Microsoft mouse and the keyboard. Perhaps the Xbox can be added to the list now. Still the company will survive just fine copy-cating others' ideas. Early users are now saying that Windows 7 feels so much like an Apple system. Surprise!?

Jan 26 01:13 AM

[Jon T:]

Microsoft in one line?

"Capitalising on Stockholm Syndrome".

and on innovation?:

"Our R&D laboratory is at 1 Infinite Loop, Cupertino".

Microsoft will die a long slow and lingering death. It's only just starting.

Jan 26 08:36 AM

[jack dee:]

duh of course Apple beat by a mile. They greatly lowered estimates in order to do so.

Had Apple left projected earnings alone instead of dropping them they would not have beat.

MSFT GE or a puppy could lower estimates and then thrash them.


And for the cry baby apple fans, yes apple is doing very well

Jan 26 01:00 PM

[User 346545:]

The author in this is bias, out of date and nothing more then another idiot blogging on the internet.

First off let me point out the following "Full disclosure: At the time of publication author had long positions in AAPL and GOOG and no positions in other companies mentioned. Positions can change any time."

For those too stupid to understand, that means he has stock in Apple and Google, thus he wants to make them look good and is happy when they do. He holds no stock in Microsoft and would obviously want to bash them as they are direct competitors to the stock he holds.

Secondly, Microsoft is NOT a monopoly. If it was, there would be no Google. Why? Because IF they were a monopoly on computer operating systems, Googles computers would all run on Windows, which they don't. And IF they thought that Google was a threat, they would simply increase the cost of Windows until Google could no longer afford the OS. Since Google obviously doesn't run Windows on its TENS OF THOUSANDS of servers, the concept of monopoly is left back with the stupid judges who didn't even have the basic computer knowledge to understand that Microsoft has NEVER stopped someone from installing another browser on its computer or EVER prevented a computer from being reloaded with Unix or any number of others.

Stupidity and nothing less. A waste of bandwidth at best.

And the author of this thread doesn't have stock in any of the above companies, so I have no bias.

Jan 28 04:52 PM