A few years ago, Apple’s
Current CEO Tim Cook echoed this sentiment lately when he said, "In my view, the tablet and the PC are different." On the other side, Microsoft
Two can play
Each tech giant has now drawn a line in the sand with how each approaches its software strategy. For Apple, Macs run OS X, while its mobile gadgets share iOS. For Microsoft, traditional PCS and tablets will share Windows 8, while smartphones will run Windows Phone. I illustrated this back when Windows 8 was first unveiled late last year.
These operating system groupings are indicative of the companies’ broader beliefs in how computing will evolve in the coming years. It also won’t come as a surprise that each company focuses on where it sees the majority of its dollars come from.
Profit is where the heart is
Microsoft’s Windows & Windows Live division is one of its bigger cash cows. While the segment was only responsible for 27% of sales last quarter, it was 46% of operating income. If you include Microsoft’s business division, which includes Office and ties into Windows for obvious reasons, those figures jump to 60% of sales and 105% of operating income.
That’s right, 105%. That leads me straight to my next point. Other divisions actually hold Microsoft back. The entertainment and devices division, or EDD, which includes Windows Phone and Xbox, generated an operating loss of $229 million last quarter. The segment frequently switch-hits between black and red ink. It had six quarters of positive operating income before the most recent one, but the cumulative net result since the beginning fiscal 2005 is an operating loss of $616 million.
The online services division is even worse -- it also operates at a loss and has done so for quite some time. It lost $479 million last quarter, and its cumulative operating deficit since fiscal 2005 is a whopping $10.3 billion (with a "b").
The point is that the Windows and business divisions carry the company, while Windows Phone does little to contribute to the bottom line, if at all.
In contrast, iPhones and iPads comprised 75% of revenue last quarter, and that’s before you include iPod Touches that also run iOS, which Apple doesn’t break out specifically. We know that iPod Touches are over half of all iPod units sold, so iOS directly drives over three quarters of sales. Apple doesn’t disclose operating income by segment, which partly relates to its organizational structure, so we can only look at its revenue breakdown.
The numbers make it pretty obvious why Microsoft continues to focus primarily on its flagship Windows, while Apple has shifted its attention to its mobile iOS instead, determining how each approaches the next wave of technology.
Has Apple been wrong all along?
Instead of "Post-PC," Microsoft instead thinks we’re entering what it calls the "PC+" era. COO Kevin Turner recently said, "We believe that Apple has it wrong. They've talked about it being the post-PC era, they talk about the tablet and PC being different, the reality in our world is that we think that's completely incorrect."
PC+ loosely refers to the idea of one operating system for PCs and tablets with expanded touch optimization, where one device serves up traditional desktops as well as touch interfaces. "We actually believe Windows 8 is the new era for the PC plus," Turner continues, "We believe with a single push of a button you can move seamlessly in and out of both worlds. We believe you can have touch, a pen, a mouse, and a keyboard."
Bill Gates is so excited about Surface that he thinks Apple will eventually have to follow in the software giant’s footsteps -- although Gates acknowledges that the market hasn’t yet shown that it wants these types of devices.
Time will tell
We won’t know until Windows 8 is launched this year whether or not consumers will vote for it with their wallets. We do know that the iPad is selling like mad. Until then, which approach do you think will work? Chime in in the comments section below.
Apple's swift disruption of some of Microsoft's core markets isn't even complete, yet, so the Mac maker still has plenty of room to run. Sign up for this brand-new premium Apple research service to read more about all of the company's opportunities, as well as the risks it faces in the coming years. You'll also get a brief rundown on CEO Tim Cook, and while he's well-compensated, you'll see why he's worth every penny. Microsoft is one of the Dow's dividend-paying stocks, but it's not one of these three that dividend investors need. Grab this free report to find out why these companies might be worth a look.
Fool contributor Evan Niuowns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Microsoft and Intel. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Intel, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
More from The Motley Fool
Here Are My 3 Top Trades for 2018
If you're not sure what stocks to own in 2018, consider starting with these three ideas.
Microsoft Earnings: Will Strong Growth Persist?
Can strong growth in cloud services and Office 365 help revenue rise nicely in Q2?
2 Great Stocks You Can Buy and Hold Forever
Both of these stocks have positioned themselves for nearly limitless growth potential long into the future.