Most people will be amazed by this statement, but in many ways Apple (NASDAQ: AAPL) in 2018 closely resembles Microsoft (NASDAQ: MSFT) in circa 2002. Consequently, AAPL stock may be riskier than many believe.
Both companies rose to the top of huge industries, with Microsoft conquering the PC market and Apple becoming the leader — at least in terms of profitability — of the smartphone market. Both Microsoft and Apple were led by tech geniuses who created hugely popular new products (Bill Gates and Steve Jobs, respectively), and were then replaced by mediocre, at best — Steve Ballmer and Tim Cook. Microsoft then, like AAPL stock now, was widely considered to be one of the best tech stocks on the market.
But most importantly, Microsoft then and Apple now never seemed to develop anything very innovative or take any chances. It usually sits back and lets the competition develop the cutting-edge products. When it does try to belatedly compete in new sectors, it usually comes up short.
Microsoft then watched as Apple developed the iPod; Microsoft’s response to the iPod — the ill-fated Zune — was a horrible failure. Ballmer’s Microsoft, of course, was caught flat-footed by the iPhone, the iPad, and by Google. It was never able to create effective responses to any of those products.
Under Cook, Apple has talked about trying to replace the cable companies. AAPL was never able to come up with anything viable in that area and was beaten to the punch by Netflix (NASDAQ: NFLX). It hoped to make Apple Music a viable, profitable competitor to Spotify (NYSE: SPOT) and Pandora (NYSE: P), but that hasn’t really seemed to work. Apple has also talked about entering the self-driving car market and developing devices that diagnose critical aspects of people’s health, but neither of those ventures has really gotten off the ground.
True Apple fans will ask, “But what about Apple Watch?” Yes, Cook did come up with a response to Fitbit (NYSE: FIT) that has been somewhat successful. But now Fitbit, a tiny company that should have been easily vanquished by a giant like Apple, has developed the highly popular Versa smartwatch and the Charge 3 tracker which also seems to be catching fire. The company also launched a partnership with Alphabet (NASDAQ: GOOGL)(NASDAQ:GOOG) that could easily create innovations which could doom Apple Watch. Fitbit’s products also have other advantages over Apple Watch, which I’ve detailed extensively in other columns.
There are a couple of other interesting similarities between Microsoft then and Apple now. Both companies primarily used gimmicks, rather than innovation, to increase their revenue. Under Ballmer, Microsoft ceased supporting old editions of Microsoft Office in order to force companies and individuals to purchase new editions. Under Cook, Apple has implemented large price increases and has (seemingly) intentionally limited the lives of iPhone batteries to inflate its top and bottom lines. Additionally, both companies had huge product fiascos that showed how poorly they were run from a tech innovation standpoint. I’m referring to Microsoft’s widely panned Vista operating system and Apple’s extremely ill-fated attempt to replace Google Maps. (It amazes me that intelligent people think Cook’s Apple can create a viable self-driving car when it couldn’t even produce working maps).
Bottom Line on AAPL Stock
But AAPL stock bulls will say, “Oh, that’s crazy. Look at how great all of Apple’s numbers are! AAPL stock has become the first with a market capitalization of over $1 trillion!”
Yes, that’s true. Also true is the fact that I have underestimated Apple stock many times in the past.
Apple has managed to continue to succeed so far because of one crucial difference between Microsoft and itself. Whereas PCs were already starting to decline by 2002, as much cheaper laptops began to replace many desktops, and of course smartphones dealt PCs another huge blow, smartphones in general and iPhones in particular have not yet been dethroned as of 2018. If, however, another type of device begins making smartphones less popular or another company was to develop a feature for smartphones that makes its devices more popular than iPhones, Apple and Apple stock could be in some trouble. It’s worth noting that in January 2002, Microsoft traded around $33 per share. On May 1, 2006 — well before the financial crisis — the shares had sunk to $22.65. That’s a decline of over 30%.
Just because the disruptor doesn’t seem to be coming doesn’t mean it’s not just around the corner. Just ask Steve Ballmer.
Those who think AAPL stock isn’t risky should think again and consider taking their profits.
As of this writing, Larry Ramer owned shares of Fitbit.