Is Apple the New Microsoft?

 | Feb 27, 2014 | 3:30 PM EST  | Comments
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Stock quotes in this article:

aapl

,

msft

,

bbry

It is possible to make a case that a large part Apple's (AAPL) success over the last few years has come about simply because it is not Microsoft (MSFT)? Apple encouraged that perception with its popular "Mac vs. PC" ads. The whole point was that Apple was different. It was edgy and hip, but above all, it wasn't Microsoft.

Then, last Friday, Apple revealed a much-publicized fix to a security problem with its iOS operating systems. The Apple haters (I am not one, I assure you) seized on this sign of vulnerability as proof that iProducts had been overrated all this time. The fanboys (I'm not one of those, either) were quiet for once -- except to point out that this was a one-off, not the constant stream of fixes that Windows users have to endure. The actual problem is embarrassing, but the fix is relatively simple so long as you have iOS 7. The damage to customers seems to have been minimal so far, but the damage to Apple's reputation may be far-reaching.

The problem, as many teenagers find out every day, is that if you take a superior attitude and tease others about their inadequacies, you'd better not have any problems yourself. We all know what payback is. Apple spent years pointing out that Microsoft had glitches and security issues, now it has its own to worry about. It is nowhere near Windows at the height of its problems, but the actual severity of the problem has been taken over by the perception of vulnerability.

This could be particularly damaging in the mobile space, where many corporations resisted the shift away from BlackBerry (BBRY) because of security concerns. Regardless of the extent of the problem, many tech departments may see their oldest employees muttering "I told you so" to the young upstarts who insisted on change -- even if this muttering is done at their retirement party. This could be good news for BBRY, but I won't be convinced of that until actual contracts are reported.

For now, this is more embarrassing for AAPL than damaging. But it did get me thinking: Is this more evidence that Apple is becoming Microsoft? Ever since the heady days of October 2012, when AAPL reached the dizzy heights of $700 per share, there have been hints. When Apple started to pay a dividend, I said at the time that this could indicate that the company no longer saw any growth-related uses for its cash. This is what happens when a company becomes dominant in its field; growth inevitably slows. Wasn't that one of the knocks on MSFT back in the early 2000s? It was still enormously profitable and dominating the market, but not growing fast enough for investors, and the stock languished.

A comparison of MSFT and AAPL charts from back then is quite interesting.

AAPL vs. MSFT
Source: VectorVest

Spooky, isn't it? A few things should be pointed out in the interest of fairness. First, MSFT's big drop was the result of the "Tech-Wreck" in 2000 as much as anything specific to the company. Second, these two charts cover different periods. Given that and the fact that AAPL is now facing the glitches and vulnerability that come with popularity, just as MSFT did at the start of this century, the similarity is still striking.

If we want to know what the future holds, let's look at the chart for MSFT since that time.

MSFT
Source: VectorVest

I don't know about you, but I don't find a 10% increase in 13 years particularly inspiring. But my trader's instincts are stirred by the extreme volatility in a defined range that came in 2001-02.

I recently turned bullish on AAPL when the stock dipped below $500, and, for the reasons outlined there, remain that way. I find it hard to resist a stock with a good dividend and stellar product line that is selling at a discount to the market and is close to the bottom of an established range, but I am less confident in the long-term prospects now than I was.

Apple hasn't quite become Microsoft yet, but similarities to its old enemy seem to be mounting. If they continue to do so, a chart that looks like the above for AAPL over the next 10 years isn't out of the question. Playing the volatility over the next year or so may be a better strategy than just holding on. Either way, I'll be watching closely.

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