Thursday, January 22, 2009

Three Companies, Three Earning Reports

Last quarter earnings for Apple (AAPL), Microsoft (MSFT) and Google (GOOG) are out. The difference is striking.

Apple beat by a mile. And it was expected, I don't understand analysts who accepts company's projections at face value. Google beat, which is no small feat for a company which gets almost all its revenue from advertising. Microsoft missed.

If we were looking at companies by business description, results would look strange. Economy is in a crisis. We have a company which makes retail goods beating expectations. We have company living by advertising beating expectations. And we have a monopoly, which should be much less sensitive to the economic environment, missing.

But things are not what they look like. These companies actually have quite different business descriptions. Apple business is to make the cutest, the easiest to use consumer electronic devices, which become instant fashion once they hit the shelves. Apple is Christian Dior of electronics, company first made computers easy and fun to use, then moved to other electronic devices. Google business is to organize world information, no less. And they are successful, they are doing it much better than anybody else. Being the geekiest company in the world helps as well. As for Microsoft... can you describe Microsoft business in one sentence? "Rule the world" doesn't cut it, ruling is not a business, and competition is way too stiff. "Make all kinds of software which you can sell"? If that's the business, company is not very good in it, once they meet good competition, they are number 2 at best (in databases after Oracle, in publishing after Adobe and Quark). And Microsoft's Web business doesn't fit in this description, no wonder it's wasting close to half a billion every quarter now.

I have my doubts about Apple, wrote about it several times. I still think that Steve Jobs is too big a part of a company and without him it might eventually lose it's fashion value. But it's still one of the greatest companies in the world. I have just an admiration for Google, which found a goldmine on the Web and is making it bigger every day. I don't have any doubts about Microsoft anymore. This is dead company walking. The only way to save it is to split it, as I proposed here. The only problem is that company is not lead by businessmen, it's lead by control freaks. They would die sooner than split company.

Full disclosure: at the time of publication author had long positions in AAPL and GOOG and no positions in other companies mentioned. Positions can change any time.

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