Why Microsoft Should Fear Apple & IBM (MSFT)

Apple (AAPL) is an enormous company with nearly $225 billion in revenue during the past four quarters. While AAPL is largely considered a consumer electronics company, its enterprise business is growing rapid, thanks in large part to its partnership with International Business Machines (IBM).

microsoft stock-msftThis growth, combined with the possibilities for IBM, could be bad news for enterprise-focused Microsoft (MSFT).

At the BoxWorks convention in San Francisco, Tim Cook probably planned to promote Apple’s new iPhone 6s and 6s Plus, but he ended up talking enterprise growth. According to Cook, Apple generated a mind-boggling $25 billion in revenue for the 12 months ending in June just from its enterprise efforts.

For a company the size of Apple, $25 billion doesn’t seem like a lot, but it shows just how far the company has come after partnering with IBM last year and receiving heavy criticism in years past for essentially having no enterprise presence whatsoever.

However, Apple and IBM’s goal to bring better business mobile apps and support for Apple devices to enterprise customers appears to be working. And that’s a scary thing for Microsoft stock.

Microsoft Stock is Largely Tied to Enterprise

Microsoft is widely known as one of the kings of enterprise, with much of its $93.5 billion in 12-month revenue coming from enterprise-related sales. Given the recent changes to Microsoft’s financial structure, it is almost impossible to determine exactly how much of its business comes from the consumer and enterprise side.

Many of these businesses intertwine, such as its $43 billion personal computing segment; Windows is a favorite desktop operating system for both businesses and consumers. Thus, business and consumer use is rolled into one reporting segment. Microsoft’s new Productivity and Business Processes unit deals with Office products, which are also used on both personal PCs and at work.

For the sake of argument, we’ll say that these two reporting segments, dealing with Office and Windows, are 40% enterprise, worth nearly $28 billion annually to Microsoft. MSFT’s other large reporting segment, Intelligent Cloud, involves Windows Server and cloud products, and is just about 100% enterprise-focused.

When you incorporate the $23.7 billion that Microsoft has earned from Intelligent Cloud in the year ending June 30, it would appear that about 55% of Microsoft’s business is in some way tied to the enterprise space.

Microsoft Stock Is at Risk

Granted, Apple does not operate in the cloud infrastructure services or server businesses. Therefore, Apple’s enterprise business is aimed directly at Microsoft’s Windows and Office operations. Like Microsoft, Apple’s enterprise products can be used by both consumers or businesses, meaning the hardware and software doesn’t change.

However, by partnering with IBM, Apple gained valuable knowledge about what enterprise customers want, and has been able to develop those apps and gain increased support via the use of IBM’s servers and cloud products.

With Apple’s enterprise business now nearly the same size as Microsoft’s Office and Windows enterprise operations, Microsoft stock faces serious risk. Enterprise is much more valuable to MSFT than it is AAPL at this juncture, and while the partnership with IBM was initially questionable, the growth of AAPL’s enterprise operations prove that businesses are responding well to these new efforts, and the partnership is paying dividends.

That said, AAPL still has a ways to go before its Macs are embraced across businesses like Windows computers. One of the big reasons is higher costs, another being that Macs don’t have the seamless integration to iOS mobile devices that one might expect.

As a result, AAPL’s enterprise growth initiatives right now are tied to iPads and iPhones, thereby providing MSFT with some cushion. However, MSFT shouldn’t get too comfortable. Cook made sure to note that enterprise is no hobby for AAPL; it’s something the company is taking very seriously, and the company will aim to grow in the enterprise with the help of solid partners like IBM.

Therefore, AAPL has come a long ways in just one year’s time, from enterprise ops that were nearly non-existent to $25 billion in annual revenue. That’s why Microsoft stock investors should be worried. With AAPL penetrating MSFT’s enterprise tablet and smartphone businesses, likely causing IBM to gain new ground in cloud services and server businesses, investors should see that Microsoft stock has a lot to lose, both next year and beyond.

Given this latest news provided by Tim Cook regarding Apple’s enterprise operations, I’d be very wary of owning Microsoft stock right now.

As of this writing, Brian Nichols was long AAPL.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/apple-ibm-might-cause-havoc-microsoft-stock/.

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