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Microsoft reports solid results, but Apple still gaining

by Scott Bicheno on 23 April 2010, 10:30

Tags: Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT)

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Good but not great

Software giant Microsoft reported its quarterly earnings yesterday, and they revealed record revenue for the March quarter of $14.5 billion, yielding a net income of four billion dollars.

A major sub-plot to this quarter's earnings season has been whether Apple would overtake Microsoft in terms of market cap (the total value of all its shares). In our HEXUS.sharewatch at the beginning of the week Apple was still $40 billion or so behind Microsoft, but since then they've both announced their earnings, with Apple's smashing expectations, while Microsoft were more or less as expected.

Microsoft's shares dropped around three percent in after-hours trading, which should mean its market cap will fall below $270 billion when the NASDAQ opens today. At close of play yesterday, Apple's market cap was $242 billion. Incidentally Microsoft is the second biggest US company by market cap behind Exxon Mobil, with only PetroChina bigger than Microsoft in the rest of the world.

Comparing their earnings alone, Microsoft should be bigger than Apple. Apple's record quarter still brought in a billion dollars less revenue and a billion dollars less net income than Microsoft. But the convergent share prices reflect Apple's superior positioning in the mobile Internet market, which is the direction the whole technology industry is headed.

One other intriguing thing to remember is Microsoft's bail-out of Apple back in 1997, when it invested $150 million in the, then struggling, PC-maker. It's thought that Microsoft has subsequently sold the shares in Apple, but wouldn't it be funny if it hadn't?

Back to Microsoft's earnings, it looks like Windows 7 got off to a pretty good start and, with the PC market recovering nicely, Microsoft sold a nice lot of Windows licenses to OEMs anticipating further sales increases. "Windows 7 continues to be a growth engine, but we also saw strong growth in other areas like Bing search, Xbox LIVE and our emerging cloud services," said Peter Klein, Microsoft CFO.

Here are a couple of graphs showing the performance of the two company's respective share prices since the start of 2009. Microsoft's value has increased by around 50 percent in that period, while Apple's has pretty much tripled.




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