The Tail Wagged the Dog When Microsoft Saved Apple

by Marc Bastow | August 28, 2012 11:30 am

Sometimes, you just can’t make reality up.

In the midst of watching Apple (NASDAQ:AAPL[1]) stock soar to previously unseen heights[2], it’s difficult to think that just 15 years ago, rival Microsoft (NASDAQ:MSFT[3]) pretty much saved Apple from the trash heap of history.

It’s true: In 1997, the world’s then-most valuable company of all time (actually, Microsoft still holds the record if you account for inflation) saved Apple’s bacon with an injection of a mere $150 million. The investment came with some strings attached from both companies — and I suspect it wasn’t without some level of rancor — but it got done.

A little perspective here about what $150 million is to Apple today: Maybe 10 minutes worth of sales. Seriously.

Not that Microsoft is hurting, but the contrast remains stark.

Microsoft was viewed in 1997 as a can’t-miss company with infinite stock potential. But the company missed or was late to so many trends — in particular, Internet search-based platforms that eventually became Google (NASDAQ:GOOG[4]) and Yahoo! (NASDAQ:YHOO[5]), and the birth and growth of mobile and tablet devices that gave rise to the likes of Amazon (NASDAQ:AMZN[6]) and, of course, Apple.

Sure, the company now is a player in the search market with Bing; it has a top-flight gaming platform in the Xbox line, it’s making inroads into cloud services and it’s ready to see whether its Surface tablet[7] can be a standard in the space.

But let’s face it: If not for good ol’ Windows and Office, Microsoft might be a much smaller company.

The kicker: In 1999, MSFT peaked at a split-adjusted $60 per share, and hasn’t been anywhere near that level since that point. Thanks for the dividends, but a 17% gain across the past 10 years is just pathetic.

Is there a lesson in this for Apple? It’s hard to say — but Apple surely is in the same position as Microsoft circa 1999, as a company whose products and innovations know no bounds, and whose stock gains seemingly undeterred.

InvestorPlace editor Jeff Reeves lays out his best case for problems[8], yet he still can’t convince himself to sell anytime soon. Similarly, IPO Playbook editor Tom Taulli advised caution down the road[9], but again can’t really push the “deep concern” button.

Me? I can’t get over how close Apple was to failure, and how — particularly during the past five years — Apple has done everything right. The company has released tech blockbuster after tech blockbuster, and its latest device — the iPhone 5 — is expected to sell better than the rest[10]. Apple has rewarded shareholders with absurd 400% growth in half a decade, and now they’ve hunkered in for the long term by issuing a $2.65 quarterly dividend[11].

My goodness, it just won more than a billion dollars in damages[12] (money the company truly doesn’t need) from rival Samsung because a court ruled that Samsung’s technology was too close to Apple’s technology. As in, it couldn’t beat it, so …

So, no, I can’t see any reason to sell. And truthfully, despite an onerous price tag, I’d tell any investor working with a small pot to make the funds available just to grab a few shares. Falls do happen, sometimes in ways you just can’t predict, and some day, the ride will slow. Just not anytime soon.

In the meantime, I’ll keep marveling at what originally helped push Apple up the hill.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long AAPL and MSFT.

Endnotes:
  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. previously unseen heights: http://investorplace.com/2012/08/apple-bests-13-years-of-market-cap-leaders-aapl-msft-ge-xom-intc-wmt-csco/
  3. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  4. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  5. YHOO: http://studio-5.financialcontent.com/investplace/quote?Symbol=YHOO
  6. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  7. Surface tablet: http://investorplace.com/2012/06/under-the-skin-of-microsofts-surface/
  8. lays out his best case for problems: http://investorplace.com/2012/08/the-bearish-case-for-apple/
  9. caution down the road: http://investorplace.com/2012/08/is-apple-in-trouble/
  10. expected to sell better than the rest: http://investorplace.com/2012/07/survey-iphone-5-should-see-monster-release/
  11. issuing a $2.65 quarterly dividend: http://investorplace.com/2012/03/does-apple-dividend-signal-end-of-growth-aapl/
  12. won more than a billion dollars in damages: http://investorplace.com/2012/08/apple-win-great-today-but-tomorrow-samsung-aapl-patent/

Source URL: http://investorplace.com/2012/08/tail-wagged-the-dog-when-microsoft-saved-apple-msft-aapl-goog-amzn-yho/
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