July 30, 2019 / 9:41 PM / 4 months ago

Breakingviews - Tim Cook plays tortoise to Satya Nadella’s hare

A customer stands underneath an illuminated Apple logo as he looks out the window of the Apple store located in central Sydney, Australia, May 28, 2018. REUTERS/David Gray

NEW YORK (Reuters Breakingviews) - Two of America’s fabled technology giants have traded places, with Tim Cook’s Apple playing tortoise to the hare that is Satya Nadella’s Microsoft. This new drama could be on for an extended run.

Apple on Tuesday reported that revenue in the three months to the end of June 29 rose 1% year-over-year to $54 billion. Sales of the company’s iconic iPhone dropped 12%. Service revenue, the money Apple collects from licensing and sales on its app store, grew 13% percent. It’s a bright spot but not enough to offset the bigger drag given it represents only a fifth of the overall pie. The results exceeded analysts’ estimates, and Apple’s stock rose more than 3% in after-hours trading.

Yet compared to its Redmond, Washington rival, Apple looks like a laggard. Earlier in July, Microsoft said its revenue for the same quarter rose 12% to $34 billion as more businesses used its Azure cloud service and subscriptions for its suite of Office products rose.

Microsoft has also overtaken Apple in market worth. A 39% rise in its stock price this year has made it the world’s most-valuable listed company at nearly $1.1 trillion. Add in dividends and Nadella’s company has delivered shareholders a total return of 36% over the past 12 months, three times Apple’s. It has beat Apple on that metric over the past five years, too.

The rivalry between the two tech giants goes back decades. Under founder Bill Gates, Microsoft was so dominant in personal computing operating systems that U.S. regulators tried to break it up. He prevailed but paid a price as Microsoft missed the mobile revolution. A string of costly, questionable acquisitions followed, including $10 billion for Nokia and $6 billion for digital-advertising agency aQuantive.

Cook hasn’t shown signs of retracing Microsoft’s past missteps. Even though Apple is sitting on $102 billion in cash, it rarely makes acquisitions. When it does, like last week’s $1 billion purchase of Intel’s smartphone modem business or a potential investment in SoftBank’s Vision Fund 2, they’re small. Apple is more likely to continue with a slow methodical approach. That could leave it in Microsoft’s shadow for some time to come.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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