Foolish Forecast: Is Apple the Next Microsoft?

Monday night is earnings night in Cupertino. A third-quarter report from Apple (Nasdaq: AAPL  ) is on tap, following a fine second quarter and a very impressive launch of the iPhone 2.0. What's next for Steve Jobs and his gang?

What Fools say:
Here's how Apple's Motley Fool CAPS rating stacks up against some of its peers and competitors:

 

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating

Microsoft (Nasdaq: MSFT  )

$238.4

14.9

***

Apple

$146.4

34.2

****

Hewlett-Packard (NYSE: HPQ  )

$107.2

14.0

****

Research In Motion (Nasdaq: RIMM  )

$62.6

40.9

**

Dell (Nasdaq: DELL  )

$49.1

17.9

**

Data taken from Motley Fool CAPS and Yahoo! Finance on July 18, 2008.

Let's start with the skeptics. "Apple has been one of the least shareholder-friendly stocks of the past few decades," says All-Star CAPS player meklarian, who has a bearish rating on Apple stock. "A rising share count, no dividend, and almost no share buybacks. If you had bought Apple 25 years ago hoping to earn income off the stock, you haven't seen a single penny."

mtlink86 thinks that Apple is "positioned as the new Microsoft. [...] The era of the naive baby boomer computer user is over. Enter the tech literate Generation Y into the workforce, not ready to deal with crashes, bugs, viruses and slowdowns which have all [benefited] the rise of Bill Gates and his monopolistic empire."

What management does:
Who doesn't want growth trends like these? The margins are also very impressive for a technology company that has been in the industry for a long time.

Margins

12/06

3/07

6/07

9/07

12/07

3/08

Gross

30.2%

31.5%

33%

34%

35%

34.4%

Operating

14.6%

16.1%

17.5%

18.4%

19.7%

19.3%

Net

11.7%

12.9%

13.9%

14.6%

15.4%

15.1%

FCF/Revenue

14.7%

18.4%

18.4%

19.7%

21.2%

21%

Y-O-Y Growth

12/06

3/07

6/07

9/07

12/07

3/08

Revenue

27.7%

24.7%

24.6%

24.3%

28.1%

33.2%

Earnings

51.9%

61.9%

67.1%

75.8%

67.8%

56%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Though mtlink86 didn't mince words when comparing Apple's products with Microsoft's, that blunt assessment cuts close to the heart of the issue. Microsoft is the old-school, hard-hitting style of business, where tradition trumps style and layers of bureaucracy have built up around the core of the operations. Apple is nearly as old, but much smaller and more nimble under an indisputably inspired and inspiring leader.

Apple is now the third-largest computer seller in North America and the runaway leader in sales of digital music and the devices that play it. All of these products come in elegant, even flashy, designs but still pack a solid technical punch. Intel (Nasdaq: INTC  ) is designing chips to meet Apple's requirements. The company is all grown up and a very respectable part of the business world. And as we've seen, some would say that it is the next Microsoft in the making.

The iPhone launch should boost a seasonally slow quarter, and the gains in computing market share give us another good sign. The stock is up 21% over the past year, across a wild roller-coaster ride with deep valleys and tall peaks. I think there's another peak coming up because this report should not disappoint.

Microsoft, Intel, and Dell are Motley Fool Inside Value picks. Apple is a Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. Or just sign up for a free CAPS account to find the identities of your fellow Fools who were quoted above. They might have more to tell you!

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.


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  • Report this Comment On July 18, 2008, at 4:37 PM, etcpp wrote:

    This is what I told my investment banker: Think about Apple as something like a unified Microsoft, Dell and Nokia.

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