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Thursday, 22 July 2010

Apple Is Not the New Microsoft. And, Yet …

Apple (red) and Microsoft (blue) closing prices for the past five years: Apple shares have gone up 500 percent and Microsoft

Apple reported record revenues earlier this week but Microsoft had a blowout quarter of its own, reporting revenues Thursday of $16.04 billion — enough to keep the Redmond giant ahead of the Cupertino company in this particular financial metric.

Apple remains the most valuable high-tech company by a fair margin. And, perhaps more importantly, when Apple exceeded expectations on Tuesday shareholders cheered, adding about $7 per share from the previous day, before the after-hours earnings report.

Microsoft’s superb quarter was greeted, instead, with crickets. Shares in the company were actually down fractionally in after-hours trading.

“It’s a great quarter — but does that matter?” Colin Gillis, analyst at BGC Partners, told Reuters. “We all knew the business refresh cycle was in place. This is the dilemma for Microsoft — how do they get the stock moving again?”

The stock chart above tells the story: For the past five years Apple has screamed, and Microsoft has coasted. Fair? If you think the market is by definition never wrong, that’s not even a fair question.

But it is something of a poser for a major company that’s made no financial mistakes to go unrewarded by Wall Street for that long — even though Microsoft has slightly outperformed the NASDAQ market where it trades and significantly outperformed the S&P 500 during this period.

Still, it’s not all just hoping for the best for holders of MSFT. The company pays a dividend of $0.13 per share — Apple has never paid a dividend. Apple hasn’t paid a dividend since 1995. It is also awash in cash, which has led Bloomberg News to speculate that Microsoft might raise its dividend to $0.15. That’s 15 percent, and for large institutional holders — and the gazillion tech funds long on MSFT especially — a very nice bump.

“They really have to do something,” Michael Holland, chairman of Holland & Co., told Bloomberg. “A dividend increase is a way for the board and management to signal their overall business is healthy.”
Not doing it “would probably send an unintended signal,” Holland said.
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