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Microsoft?s Big New Strategy Is Shunned By Apple
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Nothing new. Just food for thought:
This is the story of two guys named Steve. They have very different ideas about how to run a massive technology company.
Steve Ballmer, chief executive of Microsoft, appears to think that buying back stock will be the answer to his company?s problems.
In the calendar year?s third quarter, Microsoft repurchased 163 million of its shares, spending $4 billion to do so, according to its financial statements. To get a sense of what Ballmer is up to, in the same period a year earlier, Microsoft purchased 58 million shares for $1.4 billion. Ballmer still has $19.7 billion of buyback capacity remaining under his board?s approved $40 billion repurchase program.
Can Ballmer rescue Microsoft?s shares by buying them? Microsoft?s stock is down 10% in 2010. The S&P 500 is up 10%. With its recent stock buying frenzy, Microsoft has now repurchased some $10 billion of stock so far this year, spending more on share repurchases than any other company in America except International Business Machines and Wal-Mart. If recent trends continue, Ballmer may end up buying back more stock in 2010 than even those two companies. Ballmer clearly doesn?t believe that reinvesting the cash his company is generating or buying a strategic company with it makes as much sense as simply buying the shares of Microsoft, even though that hasn?t been a good idea for anyone in years.
But there is one notable and perhaps telling exception to the buyback trend that has swept corporate America, a CEO who has resisted stock buybacks despite pressure from Wall Street and the fact that he now has $51 billion in cash on his corporate balance sheet: Steve Jobs. His company?s stock is up by 50% this year and its market capitalization is now some $60 billion greater than Microsoft?s stock valuation. Apple doesn?t have any buyback capacity because Jobs hasn?t bothered to ask his board of directors for some.
Steve Ballmer is among the nation?s biggest embracers of the stock buyback strategy. Steve Jobs appears to want nothing to do with it. Which Steve are you betting on?
Full article here.
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Gregg Thurman
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Can Ballmer rescue Microsoft?s shares by buying them? Microsoft?s stock is down 10% in 2010. The S&P 500 is up 10%. With its recent stock buying frenzy, Microsoft has now repurchased some $10 billion of stock so far this year, spending more on share repurchases than any other company in America except International Business Machines and Wal-Mart. If recent trends continue, Ballmer may end up buying back more stock in 2010 than even those two companies. Ballmer clearly doesn?t believe that reinvesting the cash his company is generating or buying a strategic company with it makes as much sense as simply buying the shares of Microsoft, even though that hasn?t been a good idea for anyone in years.
But there is one notable and perhaps telling exception to the buyback trend that has swept corporate America, a CEO who has resisted stock buybacks despite pressure from Wall Street and the fact that he now has $51 billion in cash on his corporate balance sheet: Steve Jobs. His company?s stock is up by 50% this year and its market capitalization is now some $60 billion greater than Microsoft?s stock valuation. Apple doesn?t have any buyback capacity because Jobs hasn?t bothered to ask his board of directors for some.
Steve Ballmer is among the nation?s biggest embracers of the stock buyback strategy. Steve Jobs appears to want nothing to do with it. Which Steve are you betting on?
The only real validation of a stock buyback plan is to pump EPS, and by extension share price.
Think of how badly MSFT would be doing today if there hadn’t been a share buyback program.
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You can’t do more, make more, be more, than the next guy, if you think like the next guy. Think different.
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What the author does not realize is that MSFT does not have new products in their pipeline to add value to the company. MSFT is a software company that is closed up for lack of innovation. Apple on the other hand is very innovative. Apple is also a hardware maker that just happens to produce software. The biggest difference is life cycles. MSFT is very mature while Apple still has some growing to do. Apple was reborn with the invention of the iphone. The iphone opened Apple up to more potential customers. It takes a leader with focus and a vision to reinvent a company, Jobs has it Ballmer never had it. What I don’t understand is the constant comparison of the 2 companies. It is like comparing a football player and a baseball player.
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Adversity does not just build character, it reveals it.
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Apple is also a hardware maker that just happens to produce software
Just as an aside, I’m not sure I agree with this. Yes, it’s clear that Apple has designed its business model to make its money from its hardware sales. But even though Jobs raves about Apple’s hardware designs, it is the software that is the heart and soul of Apple.
Of course, you can’t separate the two because Apple’s secret sauce is its integration of hardware with software. And I know my next statement is going to be heretical. But if, in some alternate universe, Apple had to choose between making hardware or making software I, for one, would want them to choose to make the software. The iPod Touch, iPhone, iPad and MacBook Air are all beautiful pieces of hardware, but its iOS and OS X that power them. And iOS and OS X are the foundation that all future Apple products are going to be built upon.
Just an irrelevant rambling rant.
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Apple is also a hardware maker that just happens to produce software
Just as an aside, I’m not sure I agree with this. Yes, it’s clear that Apple has designed its business model to make its money from its hardware sales. But even though Jobs raves about Apple’s hardware designs, it is the software that is the heart and soul of Apple.
Of course, you can’t separate the two because Apple’s secret sauce is its integration of hardware with software. And I know my next statement is going to be heretical. But if, in some alternate universe, Apple had to choose between making hardware or making software I, for one, would want them to choose to make the software. The iPod Touch, iPhone, iPad and MacBook Air are all beautiful pieces of hardware, but its iOS and OS X that power them. And iOS and OS X are the foundation that all future Apple products are going to be built upon.
Just an irrelevant rambling rant.
You beat me to it so I’ll just second this. I’d also say that if sports analogies are applicable it’s like comparing a Major Leaguer to a Little Leaguer. They both have to hit a small round ball when it’s in flight and run bases but ones at an entirely different skill level.
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I don’t mind being wrong…,I just hate being wrong so FAST!
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Fal,
I agree completely that the OS is what makes the hardware flashy. For me Apple products are durable and well designed. I actually bought my MBP because my first iphone did not play well with my PC. The iphone’s success comes from the user interface, second to none. I guess my point is that Apple basically gives away its OS to sell hardware. This little redirect could be its own topic. Apple is still a hardware manufacturer and MSFT is not.
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Adversity does not just build character, it reveals it.
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Fal,
I agree completely that the OS is what makes the hardware flashy. For me Apple products are durable and well designed. I actually bought my MBP because my first iphone did not play well with my PC. The iphone’s success comes from the user interface, second to none. I guess my point is that Apple basically gives away its OS to sell hardware. This little redirect could be its own topic. Apple is still a hardware manufacturer and MSFT is not.
I actually thought your first post was quite correct and I totally understood your point about Apple being a hardware first shop. Your point about the hardware/software dichotomy just set my mind to wandering and I followed it down a rabbit hole as I’m wont to do.
Since I’m the guy who derailed this conversation, perhaps I could try to get it back on track.
How ‘bout them buy backs! They’re really something don’t ‘cha think?
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(Staying off topic, because it’s so interesting) don’t forget that Jobs actually has said “The big secret about Apple… is that Apple views itself as a software company…” and earlier attributed Apple’s success in handhelds to “software wrapped in a beautiful package…. if you really look at an iPhone, it’s software wrapped in really beautiful hardware”.
See at 21:45 and 22:45 in this video
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The only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. — Steve Jobs
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What I don’t understand is the constant comparison of the 2 companies. It is like comparing a football player and a baseball player.
If AAPL were the football player and MSFT the baseball player…I presume you meant to say…It is like comparing a professional football player with an elementary school baseball player!!!
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What I don’t understand is the constant comparison of the 2 companies. It is like comparing a football player and a baseball player.
If AAPL were the football player and MSFT the baseball player…I presume you meant to say…It is like comparing a professional football player with an elementary school baseball player!!!
Mad,
I don’t think that is quite the fair assessment. Just picture MSFT as Lou Gehrig. I shouldn’t have to fill in the rest. Lets not forget that once upon a time MSFT basically ruled the world of tech. It amazes me that MSFT though enough of Apple to save it, yet Applenatics despise MSFT. I did not like MSFT because I think companies can become to large. When companies become to large they can control to much, especially competition. MSFT was the best at buying talent/companies, Apple is doing the same thing. Make no mistake, I don’t like the idea of Apple getting to big either. I would be against Apple buying a studio or carrier. It might be good from a shareholder perspective, but bad in every other way. I am a very staunch conservative and a capitalist, but most large corporations desire to be monopolies and that I can’t justify. It does not matter if it a private/public company or the government, monopolies are bad, period.
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Adversity does not just build character, it reveals it.
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DawnTreader
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Microsoft and Apple are in much different phases of enterprise growth. Share buybacks can be an effective means to increase eps (and presumably the share price) as growth rates slow. Microsoft thrives on volume and it might be best to use some cash to purchase an expanded presence in markets in which the company lags competitors. I don’t see the Windows 7 Phone Series delivering what Microsoft needs in that market.
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(Staying off topic, because it’s so interesting)
Dammit, you’re right! This is more interesting. I should have just named this thread: “Apple’s secret sauce: Hardware or Software?”
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Lets not forget that once upon a time MSFT basically ruled the world of tech. It amazes me that MSFT though enough of Apple to save it, yet Applenatics despise MSFT. I did not like MSFT because I think companies can become to large.
Steve Jobs said he did not like Microsoft because they had no taste. I don’t like Microsoft because they have no class. They don’t give a damn about the end user, they just want to rule the world.
Don’t get me wrong, if Apple had had the same monopoly power as Microsoft did, I’d be ripping my hair out over all their mind-numbing quirks and eccentricities. But I still think I’d have far preferred their monopoly over Microsoft’s.
I’m going to go all nerdy here and use a Lord of the Rings analogy. Microsoft is like the dark lord, Sauron. His only goal is to rule for the sake of ruling. We’d all live in endless despair and and be constantly harassed by Orcs (viruses?). Apple is like the Lady Galadriel. At one point in the book she is offered the ring of (monopoly) power. She contemplates what accepting the ring would mean to the world. Paraphrasing only slightly:
In the place of a Dark Lord you would have a (Steve Jobs)! Not dark but beautiful and terrible as the Morn! Treacherous as the Seas! Stronger than the foundations of the Earth! All shall love me and despair!
If Steve Jobs had won the PC wars, we’d all love him and despair. But I still feel I would have preferred to have despaired in Jobs’ world rather than Gates’ world, because while Gates’ gaze remained constantly fixed on power, Jobs’ gaze remains constantly fixed on perfection. Or at least his interpretation of perfection.
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It amazes me that MSFT though enough of Apple to save it.
That’s a myth. Microsoft’s investment and agreement to make mac office were small commitments and don’t constitute saving Apple. Microsoft simply needed to appear less of a monopoly because of antitrust scrutiny.
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The only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. — Steve Jobs
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DawnTreader
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It amazes me that MSFT though enough of Apple to save it.
That’s a myth. Microsoft’s investment and agreement to make mac office were small commitments and don’t constitute saving Apple. Microsoft simply needed to appear less of a monopoly because of antitrust scrutiny.
That’s a big myth. IIRC, Apple caught Microsoft with its developer hand in the QuickTime code cookie jar. Rather than face Apple legal again, they chose to play nice. At the time, Apple had a $1 billion in cash on the books.
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Fal,
You lost me with the Lord of the rings.
James Bond I get, remember who you are talking to. Signature
Adversity does not just build character, it reveals it.
