Apple’s (AAPL) market cap is bigger now than the combined market caps of its long-time rivals in the personal computing business, Microsoft (MSFT) and Intel (INTC).
And, in an industry obsessed with who’s up and who’s down, that’s seen as another sign of the inevitable decline of the Wintel partnership of Intel’s chips and Microsoft operating software.
Certainly charts like the one below make clear that compared to Apple, Microsoft and Intel (and just about everything else) have been dead money plays in recent years.
And it’s certainly true that you could do worse than betting on Apple’s ability to continue its rapid expansion of revenue, profit and stock price. For the nine months ended June 25, Apple’s revenues rose 78%, to $80.0 billion. Net income nearly doubled, to $19.3 billion, or $20.63 a diluted share. Even at that astounding growth rate, Apple shares trade at less than 16 times trailing earnings.
Microsoft and Intel, meanwhile, are growing nicely, though not nearly as rapidly as Apple. Microsoft’s revenues for the fiscal year ended June 30 rose 12%, to $69.9 billion. Intel’s revenue for the six months ended July 2 rose 23%, to $25.9 billion, and the company expects to grow “in the mid-20 per cent range” for the full year.
Those growth rates beat the hell out of revenue advancement at General Electric (GE) or Altria (MO), for instance, yet these laggards enjoy higher multiples than the out-of-favour Wintel twins.
Clearly, Microsoft and Intel get no respect, and that’s a good thing if you’re a long-term value investor. Both companies are sitting on huge cash positions. They’ve become less chintzy with their cash in recent years, paying a decent dividend.
And, especially in the case of Microsoft, buying back lots of stock.
But more importantly, the cash allows Microsoft and Intel to make acquisitions, as they struggle to perform better in mobile computing and cloud computing. Though neither company has a great record in acquiring other companies, their focus seems improved, and managements certainly realise they can’t stand pat.
The stocks of Microsoft and Intel have suffered because, in technology land, their products are un-cool. But based on financial performance, the stocks appear mighty cheap.