Financial Comparison Of Microsoft, Dell, And Apple

Microsoft Computers

Microsoft is currently the largest company in the computer industry. With a market capitalization of $291 billion, Microsoft has built an empire by dominating software sales for personal computers. Stock growth over the past 25 years has increased by more than 30,000%. However, Microsoft’s growth has substantially decreased since the market collapse of 2001(Niemond 25 April 2007).

From June 2004 to June 2005, Microsoft saw a 33% growth in net income. However, from June 2005 to June 2006, growth decreased to 2%. Investors consider net income to be the leading indicator for a stock price. To illustrate how the changes in net income affect stock prices, a time line is shown below.

6/30/04 Net income Change $24.65 Stock Growth

12/30/04 $25.89 (04-05)

6/30/05 33% $24.93 1.1%

12/30/05 $25.61 (05-06)

6/30/06 2.4% $23.92 (4.1)%

In Microsoft’s 2004 fiscal year, a 33% increase in net income resulted in a 1% increase in stock price. In the 2005 fiscal year, a 2% gain in net income resulted in a 4% decrease in stock price (Microsoft Inc 2006). As seen, an increase in net income does not automatically lead to an increase in stock price. For growth companies such as Microsoft, stock price is primarily driven by the growth of earnings (25 April 2007).

Investors in the stock market judge earnings growth against two figures: the average industry earnings and the estimated earnings for the company. If analysts predict earnings to be above the industry average, a company’s stock price will usually rise. If companies report earnings higher than predicted, stock price will typically rise even more.

Since 1991, Microsoft’s earnings per share have risen each year. However, the percentage increase in these years has been decreasing (13 April 2007). This trend has not been well received by investors, as indicated by a net 0% change in the stock price over the past seven years.

The promise of a rewarding return from investing in Microsoft stock will be unlikely if current trends do not reverse. Because Microsoft derives the majority of revenue through software sales, the company must either enhance its current products or enter new markets to remain competitive.

Business Plan

Recent data shows that 78% of computer users use Microsoft Windows as their primary operating system. Microsoft has also just released a new operating system known as Vista that competes primarily with Apple’s Mac OSX.

Van Baker, a marketing analyst, believes that the release of Vista may have pushed Microsoft closer towards meeting the higher expectations of today’s computer users.