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OPINIONS

Apple Surpasses Microsoft`s Earnings...Finally!
By: Joe Eitel
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    2008-12-08

    Table of Contents:
  • Apple Surpasses Microsoft`s Earnings...Finally!
  • Five iPhone Revenue Engines
  • Retail Profits
  • Media and Software Sales

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    Apple Surpasses Microsoft`s Earnings...Finally!


    (Page 1 of 4 )

    Even Apple's biggest fans can hardly have expected to see this day. Indeed, you have to look very closely at the accounting sheets to notice it at all, but Apple finally surpassed Microsoft where it counts. Keep reading to find out how we uncovered this tidbit, how Apple did it, and what it means for the future of both companies.

    Introduction

    If you think Microsoft has morecashthanApple, think again. Microsoft cannot disregard Apple anymore; it is indeed a force to be reckoned with, and investors must take notice. Here are some interesting facts.

    When the quarter ended in September, 2008,Microsoft’srevenues came in at the following: $15.06 billion in revenues and $4.37 billion in net profits. Cash, short-term investments, and cash equivalents came up to $20.7 billion. Microsoft’s quarterly revenues increased at 9%. Meanwhile, Apple reported the following earnings: $7.9 billion in revenues and $1.14 billion in net profits. Apple’s non-GAAP revenue grew by 75% on a yearly basis.

    However, these numbers do not reflect the iPhone business because this is buried in subscription accounting, which is based on GAAP (General Accepted Accounting Principles) rules. To give the real growth, Apple released its earnings in this area, showing that it produced $11.68 billion in revenues and $2.44 billion in net profits. Apple reported that it has $24.5 billion in cash.

    Many investors, analysts, and media attributed these revenues and profits to the success of the iPod. After all, iPod sales grew at 5% year-over-year, although this product’s revenue growth was still up at 16.6% in the first quarter of 2008 compared to the same quarter in the prior year. People refer to Apple as the “iPod maker” or “gadget maker” because they believe Apple makes the most money from this product. However, this is not the case.

    Analysts have overlooked the growth of Apple’s other businesses, including the iPhone and Mac revenue. For example, the Mac accounted for 31% of Apple's revenue while the iPhone accounted for 40.09%.AppleInsider.comprovides a breakdown of this information in itstables and charts. The iPhone and Mac are turning out to be the catalyst for Apple’s current and future revenue growth. Based on GAAP, it is predicted that by the fourthquarter in 2009, iPhone revenue will outperform iPod revenue.

    Analysts, investors, and the media must look at Apple differently. It is no longer just an iPod player. Apple has plenty of money, and calls its own shots when it comes to generating profits and offering features for its iPhone.

    No doubt, the iPhone will play a central role in Apple’s earnings. It will also help Apple in becoming a competitive force against mobile phone manufacturers, such as HTC, LG, Samsung, Sony Ericsson, Nokia, RIM (Research in Motion), and Motorola. These companies face revenue challenges because of their restricted relationships with mobile phone providers. Apple, on the other hand, has the money to invest in research and development so that it can continue to create more innovative products and services.

    The iPhone is in a world of its own. Apple doesn’t have to worry about competing against Microsoft. This is due to the fact that Microsoft does not have a smart phone out in the market. Another thing that Apple does not have to worry about is any company copying its unpatented technology and then reselling it to other hardware manufacturers for duplication. No doubt, this is a different landscape than what occurred in the 1980s when Apple came out with the Mac. At that time, hardware manufacturers could clone the technology and resell it to other companies.

    Currently, the Symbian OS controls the global mobile phone market. Symbian OS is a mature platform, but it is incompatible in many areas. Palm once led the market, but that is no longer the case. Windows Mobile also tried to make a go of the market, but unfortunately, it failed. This left the door open for other innovative companies to create exceptional products, such as RIM’s (Research in Motion) Blackberry and Apple’s iPhone.

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