15 July 2019
Under CEO Satya Nadella, Microsoft has refocused on enterprise and cloud business, helping it gain market share in the fast-growing industry segment. Photo: Bloomberg
Under CEO Satya Nadella, Microsoft has refocused on enterprise and cloud business, helping it gain market share in the fast-growing industry segment. Photo: Bloomberg

Why Microsoft looks set to capture title of most valuable firm

In the tech world, no company can take its market position or leadership title for granted. For proof, just take a look at the changing fortunes of Apple and Microsoft in relation to their valuations.

After a record US$1.1 trillion in market value in early October, two months after it became the first publicly traded entity to cross the trillion-dollar threshold, Apple has seen its stock get beaten down about 25 percent, leading to erosion of about US$275 billion in market cap.

Over the same period, its long-standing rival Microsoft has held up much better, despite a broad selloff of tech counters on Wall Street, with the result that Microsoft now appears poised to dislodge Apple as the world’s most valuable firm.

As a matter of fact, Microsoft briefly took the title on both Monday and Tuesday this week, before giving way to Apple by the closing bell.  

As of Tuesday close, Apple was worth US$826.84 billion, while Microsoft had a market cap of 822.43 billion, setting the stage for an interesting battle in the days ahead.

Market watchers believe it’s just a matter of time before Microsoft wins the top honors, though one cannot say how long it will be able to hold onto the title given the rapidly changing fortunes in the tech arena.

For now, there seems to be more positive sentiment toward Microsoft than Apple, with very good reason. 

With new iPhones believed to have drawn weaker-than-expected response in the market, and media reports speculating that Apple has ordered production cuts, investors have turned cautious over the Cupertino-based tech behemoth.

The new phones haven’t spurred enough existing Apple users to upgrade, while higher prices have put off potential new customers. Increased competition in the marketplace, which has seen Apple lose out in key markets such as India, is another factor that has weighed on the firm.

Amid slowing phone sales, Apple announced recently that it will stop releasing quarterly figures for unit shipments. 

Meanwhile, analysts are also worried about potential impact on the firm from the US-China trade war, with the Trump administration not ruling out the possibility of tariffs being imposed on Apple’s made-in-China products.

Amid a cloudy outlook for hardware sales, Apple has said it will step up focus on services business. However, it is yet to prove that it can enhance revenues from that segment significantly and reduce the firm’s overall reliance on iPhone sales for its top line.

In contrast to Apple, Microsoft has seen a resurgence in its fortunes, as the company reworked its strategy following a leadership change four years ago.

After Satya Nadella took over as CEO in 2014, taking the reins from Steve Ballmer, Microsoft has been devoting more efforts to enterprise business and cloud services, while scaling back or pulling out from some hardware initiatives.

Microsoft has its own share of problems, given the shrinking PC market as people increasingly opt for mobile devices, but it seems to be working its way around the issues better to find new growth avenues.

Reinventing itself, Microsoft has managed to boost its enterprise and services business, including the Azure cloud operation, while reducing its dependence on Windows.   

Coming to Apple, while the iPhone maker understands that the smartphone business may have reached a peak and that the firm should focus more on content offerings such as music, movies and TV shows as well as other services, many of the initiatives are still in an early stage.

In the near future, the company could find it challenging to boost revenues on a sufficient scale that would justify top billings for the firm in the stock market.

As of now, many investors seem to believe that Microsoft may be on a more sure footing, compared to Apple, in terms of how it intends to shape its future.

Having suffered in the past after losing out to rivals in the era of mobile devices, Microsoft has sought to rebuild itself, with a focus on business customers.

After becoming the CEO, Nadella refocused Microsoft on the cloud, which led to the software giant gaining market share in the fast-growing industry segment. The company was the top cloud services provider for enterprises last year, ahead of Amazon, IBM and Google.

The success prompted many analysts to upgrade their target prices and recommendations on Microsoft stock, providing momentum to the counter. During the market selloff recently, which saw leading tech counters receive a severe drubbing, Microsoft held up better, suffering limited losses.

Earlier this year, Microsoft passed Google in market cap, and last month it also pulled ahead of Amazon. Right now, it is only slightly behind Apple, and looks well placed to vault to the top spot. 

Compared with Apple which is mainly consumer-focused, Microsoft now rides cross-platform technologies, cloud and artificial intelligence for enterprises. This could help the company protect itself better during economic downturns, given that enterprise spending on cloud is unavoidable whatever the macro environment.

Now, let’s wait for the news of the Seattle-based firm being in the lead once again over Apple in stock market valuation, recapturing a spot it last held more than eight years ago.

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EJ Insight writer

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