Five Reasons Steve Ballmer Thinks Apple's a Buy

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Includes: AAPL, MSFT
by: Jason Schwarz

In a very odd twist, Apple (NASDAQ:AAPL) has gained a huge supporter in Microsoft (NASDAQ:MSFT) CEO Steve Ballmer.  After observing his recent actions one might conclude that he is more bullish on Apple than even Apple's own conservative management.  The following list offers up the 5 AAPL buy signals coming out of Redmond:

1. Apple's Superior User Experience.  In Mr. Ballmer's email to Microsoft employees on July 23rd he said, "There is no doubt that Apple is thriving.  Why?  Because they are good at providing an experience that is narrow but complete...Today, we're changing the way we work with hardware vendors to ensure that we can provide complete experiences with absolutely no compromises." 

He has instructed his employees to do it like Apple does it.  What a vote of confidence from the CEO of this market share leader.  The intuitive software that Apple has produced for the digital lifestyle is so easy to use that they have basically eliminated the need for instruction manuals.  The experience begins with iTunes music, movies, television shows, audiobooks, podcasts, games, and applications.  Then users naturally branch out to iphoto, imovie, ichat, pages, keynote, numbers, and mobileme.  

To make matters worse for Mr. Ballmer, the Apple hardware division innovates more efficiently than anyone in the world.  Rumors abound that a refresh of iPods and Macs should arrive on September 9th in time for the holiday shopping season.  Microsoft shareholders must be wondering why they don't just own Apple?  Mr. Ballmer has shown no interest in innovation; he prefers imitation.  The July employee email sent out by Ballmer represents a significant collapse in competitive innovation.  The message for shareholders is simple-buy the real thing, buy AAPL.

2. The Zune Reveals Continued iPod Strength.  Microsoft's Zune was initially labeled the 'iPod killer' when it was released but has fallen on hard times.  In the same amount of time it took the Zune to sell 2 million units, the iPod sold 93 million units.  The music division at Microsoft is in such disarray that on August 8th they actually shut down MSN music, telling customers that purchased songs could not be transferred to new computers. Thanks for reminding us that the iPod continues to flourish. 

Most Apple investors had actually forgotten about it, but not Mr. Ballmer.  His latest effort to beat the iPod is to tout the fact that Zune users can 'squirt' (his word, not mine!) songs wirelessly to their friends and if anybody buys the song a commission will be paid out.  Basically it's a multi-level marketing squirting scheme.  I think I better cut this paragraph off right now, it's starting to get a little weird.  The message for shareholders is simple-Microsoft tried to imitate the iPod and they failed.  Buy Apple.

3. Vista's Failure Has Boosted Mac Sales.  Forrester Research has found that 'eighteen months after the release of Windows Vista, enterprise adoption is still in the single digits, and the majority of that seems to have come from upgrades of legacy Windows versions'.  In a separate report it was found that 60% of customers looking to buy a new computer system do not want to deal with Vista, 42% of them are actively looking at alternatives like Apple's OS X and Linux. 

In previous articles I have outlined how difficult it is to succeed in the operating system market because of rigid barriers to entry (for example, here).  Microsoft had created such a monopoly that the only chance for another company to substantially emerge would arise from a Microsoft mistake.  Lucky for Apple, Vista is that mistake.  I'm sure Mr. Ballmer will be paying close attention to the number of Mac's sold during back-to-school shopping season.  It looks like it's going to top 3 million.  Buy Apple.  

4. Apple Marketing Works.  The Mac/PC commercials starring Justin Long and John Hodgman have been a hit.  My personal favorite is the one where PC sings the 'Vista Blues' about the users who are leaving and not coming back because of the glitches, the patches, the expensive upgrades, and the frozen screens with only one thing left to do...control, alt, delete!  Steve Ballmer thinks that negative perception is to blame for the Vista fallout so he went and hired the coolest guy he could think of to turn the disaster around...Jerry Seinfeld.  Wow.  No disrespect to him because I think he's a great guy, but even Seinfeld himself could sense that his popularity had plateaued when he shut down his show back in 1998. Mr. Ballmer should have checked the iTunes best sellers list before his latest trial of imitation.  Perhaps a star like American Idol's Randy Jackson or Lost's Matthew Fox would have drawn new interest, I'll bet country singer Carrie Underwood would have done it for $10 million.  This marketing effort by softy is another testament to Apple's enduring success.  

5. Apple's App Store Exceeds Expectations.  Apple announced that they sold 1 million iPhones with 10 million apps downloaded in the first 3 days of availability.  Apple investors have been wondering if this trend is going to continue?  Steve Ballmer sure thinks so.  We recently found out that Microsoft will be opening an app store of their own called SkyMarket, but there's one problem.  And this is the major problem with Ballmer's strategy.  He's at least a full year behind.  They are just now getting around to hiring somebody to develop the imitation store.  By the time its up and running Apple will have sold 50 million iPhones and had a billion app downloads.  SkyMarket is on the same path as the Zune Marketplace for music.  I'll pass on buying any MSFT, instead, I'll just do the same thing that Mr. Ballmer's been doing and head over to AAPL. 

In conclusion, the fact that Steve Ballmer is willing to copy so many different aspects of Apple's business is a sign of Apple's growing dominance.  Next month we'll probably see the Microsoft CEO wearing a black shirt and jeans.  I just hope he doesn't try the Steve Jobs weight loss thing.  You never know... Patient investors will yield big returns on Apple stock over the long run.  In the short run it's important to understand a number of different issues that I alert readers to in real-time at www.lonepeakportfolios.com.  Knowing that Mr. Ballmer is an Apple bull is just one more reason to own this stock. 

Disclosure: Long AAPL