How Apple Outgrows Microsoft By 2010

Could Apple (AAPL) have a shot at outgrowing Microsoft (MSFT) within the next 5 years?

Both Microsoft and Apple have seen healthy revenue growth in the last 5 years. Microsoft’s revenues have grown approximately 60% from just under $30B in 2002 to over $44B in 2006.

However, while Microsoft has grown linearly for this period, Apple has accelerated with revenues of just under $6B in 2002 growing to just under $21B in 2006. An impressive 250% revenue growth! In other words, Apple has been growing much faster than Microsoft.

The graph below shows the quarterly earnings for the companies between 2002 and 2006:

The graph below shows an extrapolation of Microsoft’s linear and Apple’s almost exponential revenue growth. The revenue figures are for the trailing 12 months to provide data to base trend lines on that is insensitive to seasonal variations. (Such as the Christmas quarter normally being a stronger one.) The trend lines selected where the ones providing the best fit: a linear one for Microsoft and a second order polynomial one for Apple.

As you can see, a pure extrapolation shows that Apple could catch up with Microsoft as early as 2010 or 2011, given the current growth rates.

Of course, an extrapolation is just an attempt at predicting the future based on the past. Caveat emptor etc. It is clear however, that it is likely that Apple will give Microsoft a run for their money. So to speak.

Comments

[Jon T]

Let's face reality:

Microsoft
Vista - poor user experience and continuing security issues means there will be resistance to its adoption
Office - new version's benefits are nebulous
Zune - bombed for its hardware, its software, its DRM and its style, or rather lack of it
X-Box - being outshone and outsold by Nintendo Wii and PSP2 and PSP3
Search - a disaster area
Plays4Sure - partners were shafted
Win CE/Mobile - hardly making any inroad into Symbians domination and now facing the challenge of iPhone
Customer satisfaction - viruses, Windows botnets creating spam all are making customers ask, why?
Credibility - low, performances by Gates and Ballmer attract much criticism, and emails shown in evidence demonstrate their envy of achievements by Apple (and that was back in 2004).

Apple
OS X - Unix based, secure and attracting huge acclaim as the best user interface, new version Leopard this spring will take it further ahead of Vista
Macs - hardware designs that leave the competition looking dull, even when big increases in manufacturing capacity has allowed some more hardware failures to creep in, but..
Customer satisfaction - is the highest in the computer industry with problems sorted to customers' satisfaction
iTunes - the only successful online sales of digital media to date
iPod - many times copied, but they never come close
iPhone - will certainly be the most easy to use phone and the one to beat. Market share 1 or 2 or even 3% has to be possible.
Aperture/Final Cut Pro/Filemaker - ground breaking professional applications for photographers, film makers and databases creators
AppleTV - Selling better than expected and could be the first to bring computer sourced digital content to the big TV screen
Credibility - sky high, despite the many attacks on it and its suporters from various "experts" (examples: Enderle/Dvorak/ ) wanting to see established players keep position and control (particularly Microsoft)

Microsoft will continue to levy its extortionate tax levy on the world for Windows and Office, which will fund much lossmaking activity. But its growth will not be good, and if the tipping point is reached when it becomes seen as a pariah rather than a customer friendly innovator, it could slide towards flatlining.

Apple has so many positives that it is impoosible to think it will do anything but ramp up its already astonishing growth rate.

[Tom B]

I agree 100% but there is that IT inertia thing--who knows how long the MSFT cultists to capitulate?