When it comes to hardware innovation, the inviolable rule for many die-hard fanboys has been that whatever the category of the device, Microsoft Corporation (NASDAQ:MSFT) plays second fiddle to Apple Inc. (NASDAQ:AAPL). Heck, that’s even putting it mildly because MSFT has in the past barely been able to compete in the game of hardware design.
But now the tables are quickly turning under the leadership of Satya Nadella. Microsoft is now the company that’s walking the walk while AAPL just seems to be talking the talk.
MSFT: Falling Through the Looking Glass
In what sounds like an improbable tale, MSFT is now being hailed as the real innovator in modern PC design, while Apple is being pilloried for its timid technology decisions and outdated devices. In a recent blog post, Microsoft says the month of November was the best-ever for the company’s Surface lineup after recording strong sales momentum across key markets.
But here’s the punchline: MSFT’s trade-in program for MacBooks was the best ever, something the company attributed to the excitement about the launch of new devices, including Surface Studio, Surace Book and Surface Hub.
This might feel like falling through the looking glass, but it’s probably accurate. Microsoft did not quantify the actual number of users that have traded in their MacBooks for some svelte Surface devices, but the numbers could be substantial if Apple’s latest report is any indication.
During its Q4 2016 report in October, AAPL said that it sold 4.9 million Macs bringing in revenue of $5.7 billion. That represented a sharp 14% and 17% drop in unit sales and revenue, respectively.
Microsoft Surface Surpasses MacBooks in PC Design
Microsoft’s approach to the modern PC could not be more different from Apple’s. MSFT has gone all-in with touchscreens and platform convergence. The company has built Window 10 to support ”One Core,” essentially meaning that the same Windows code runs desktops, notebooks, ARM-based tablets, Xbox One and a huge number of Internet of Things devices.
This allows these devices to share a large number of APIs, thus making it very easy to create Universal Windows Platform apps. Microsoft can now ship updates to all these platforms simultaneously and even support non-traditional form factors.
Microsoft’s new Surface lineup, particularly the Surface Studio, has been well received. Surface Studio, Microsoft’s first-ever desktop product, is an innovative, ultra-thin 28-inch touchscreen desktop that can be tilted into a variety of comfortable angles. The consensus is that the Surface Studio looks gorgeous and at $3,000 probably represents what the iMac should have become in the future.
The Surface Dial represents another bold and risky move by MSFT, but one that seems to have paid off. By sticking this little smooth hockey puck into the Surface Studio screen, the user can dial any number of apps.
Meanwhile, AAPL has adamantly refused to add touch capabilities to MacBooks, preferring instead to bring in features such as an OLED touchpad and USB-C connectivity. The use of USB-C connectivity and lack of even a single standard USB port in particular has riled many Mac users because many peripherals that just don’t play nicely with the new standard. The lack of physical escape key could also become a potential problem if OS X starts acting up.
As far as AAPL is concerned, the Mac is only a legacy device and the future PC will be a direct descendant of its iPad Pro. In fact, it appears as if Apple is deliberately trying to put its classic Mac line into a path to obsolescence while trying to beef up the iPad Pro. But not all Mac users appreciate going this route, and this might become a problem for Apple.
The Bottom Line for MSFT Stock
The Intelligent Cloud segment has been the main focus for MSFT stock investors, while the Personal Computing segment, which encompasses the Microsoft Surface lineup and other MSFT hardware, has been declining moderately. AAPL still sold nearly four times as many MacBooks compared to the amount of Microsoft Surface devices sold by MSFT. But judging by the strong Surface momentum and Apple’s Mac fumbles, things might not remain this way for long.
MSFT stock has racked up gains of more than 13% in 2016. UBS recently ranked MSFT stock No. 3 in the Top 10 Most Overweight Stocks list. With a high RSI reading of 69.5, the stock is knocking on overbought territory, which could create short-term weakness. Still, Microsoft stock looks like a good long-term holding.
As of this writing, Brian Wu did not hold a position in any of the aforementioned securities.
