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Five Reasons Steve Ballmer Thinks Apple's a Buy

by: Jason Schwarz September 03, 2008 | about stocks: AAPL / MSFT    

Jason Schwarz

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In a very odd twist, Apple (AAPL) has gained a huge supporter in Microsoft (MSFT) CEO Steve Ballmer.  After observing his recent actions one might conclude that he is more bullish on Apple than even Apple's own conservative management.  The following list offers up the 5 AAPL buy signals coming out of Redmond:

1. Apple's Superior User Experience.  In Mr. Ballmer's email to Microsoft employees on July 23rd he said, "There is no doubt that Apple is thriving.  Why?  Because they are good at providing an experience that is narrow but complete...Today, we're changing the way we work with hardware vendors to ensure that we can provide complete experiences with absolutely no compromises." 

He has instructed his employees to do it like Apple does it.  What a vote of confidence from the CEO of this market share leader.  The intuitive software that Apple has produced for the digital lifestyle is so easy to use that they have basically eliminated the need for instruction manuals.  The experience begins with iTunes music, movies, television shows, audiobooks, podcasts, games, and applications.  Then users naturally branch out to iphoto, imovie, ichat, pages, keynote, numbers, and mobileme.  

To make matters worse for Mr. Ballmer, the Apple hardware division innovates more efficiently than anyone in the world.  Rumors abound that a refresh of iPods and Macs should arrive on September 9th in time for the holiday shopping season.  Microsoft shareholders must be wondering why they don't just own Apple?  Mr. Ballmer has shown no interest in innovation; he prefers imitation.  The July employee email sent out by Ballmer represents a significant collapse in competitive innovation.  The message for shareholders is simple-buy the real thing, buy AAPL.

2. The Zune Reveals Continued iPod Strength.  Microsoft's Zune was initially labeled the 'iPod killer' when it was released but has fallen on hard times.  In the same amount of time it took the Zune to sell 2 million units, the iPod sold 93 million units.  The music division at Microsoft is in such disarray that on August 8th they actually shut down MSN music, telling customers that purchased songs could not be transferred to new computers. Thanks for reminding us that the iPod continues to flourish. 

Most Apple investors had actually forgotten about it, but not Mr. Ballmer.  His latest effort to beat the iPod is to tout the fact that Zune users can 'squirt' (his word, not mine!) songs wirelessly to their friends and if anybody buys the song a commission will be paid out.  Basically it's a multi-level marketing squirting scheme.  I think I better cut this paragraph off right now, it's starting to get a little weird.  The message for shareholders is simple-Microsoft tried to imitate the iPod and they failed.  Buy Apple.

3. Vista's Failure Has Boosted Mac Sales.  Forrester Research has found that 'eighteen months after the release of Windows Vista, enterprise adoption is still in the single digits, and the majority of that seems to have come from upgrades of legacy Windows versions'.  In a separate report it was found that 60% of customers looking to buy a new computer system do not want to deal with Vista, 42% of them are actively looking at alternatives like Apple's OS X and Linux. 

In previous articles I have outlined how difficult it is to succeed in the operating system market because of rigid barriers to entry (for example, here).  Microsoft had created such a monopoly that the only chance for another company to substantially emerge would arise from a Microsoft mistake.  Lucky for Apple, Vista is that mistake.  I'm sure Mr. Ballmer will be paying close attention to the number of Mac's sold during back-to-school shopping season.  It looks like it's going to top 3 million.  Buy Apple.  

4. Apple Marketing Works.  The Mac/PC commercials starring Justin Long and John Hodgman have been a hit.  My personal favorite is the one where PC sings the 'Vista Blues' about the users who are leaving and not coming back because of the glitches, the patches, the expensive upgrades, and the frozen screens with only one thing left to do...control, alt, delete!  Steve Ballmer thinks that negative perception is to blame for the Vista fallout so he went and hired the coolest guy he could think of to turn the disaster around...Jerry Seinfeld.  Wow.  No disrespect to him because I think he's a great guy, but even Seinfeld himself could sense that his popularity had plateaued when he shut down his show back in 1998. Mr. Ballmer should have checked the iTunes best sellers list before his latest trial of imitation.  Perhaps a star like American Idol's Randy Jackson or Lost's Matthew Fox would have drawn new interest, I'll bet country singer Carrie Underwood would have done it for $10 million.  This marketing effort by softy is another testament to Apple's enduring success.  

5. Apple's App Store Exceeds Expectations.  Apple announced that they sold 1 million iPhones with 10 million apps downloaded in the first 3 days of availability.  Apple investors have been wondering if this trend is going to continue?  Steve Ballmer sure thinks so.  We recently found out that Microsoft will be opening an app store of their own called SkyMarket, but there's one problem.  And this is the major problem with Ballmer's strategy.  He's at least a full year behind.  They are just now getting around to hiring somebody to develop the imitation store.  By the time its up and running Apple will have sold 50 million iPhones and had a billion app downloads.  SkyMarket is on the same path as the Zune Marketplace for music.  I'll pass on buying any MSFT, instead, I'll just do the same thing that Mr. Ballmer's been doing and head over to AAPL. 

In conclusion, the fact that Steve Ballmer is willing to copy so many different aspects of Apple's business is a sign of Apple's growing dominance.  Next month we'll probably see the Microsoft CEO wearing a black shirt and jeans.  I just hope he doesn't try the Steve Jobs weight loss thing.  You never know... Patient investors will yield big returns on Apple stock over the long run.  In the short run it's important to understand a number of different issues that I alert readers to in real-time at www.lonepeakportfolios.com.  Knowing that Mr. Ballmer is an Apple bull is just one more reason to own this stock. 

Disclosure: Long AAPL

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This article has 25 comments:

  •  
    Sep 03 08:57 AM
    Quarter after quarter Apple outperforms expectations and previous quarters, moving into record territory. But the stock can't get over the $200 hurdle. I'd love to know where it would be in a healthier market.
    Even with the current market conditions, I have to wonder how all this good news could already be factored into the share price. It doesn't seem logical for Apple to keep hitting home runs and not get back to $200 per share. Mac sales increasing at a remarkable rate, stock stuck in the mud.
    Someone tell me why...
    Reply
  •  
    Sep 03 09:22 AM
    "Quarter after quarter Apple outperforms expectations and previous quarters, moving into record territory. But the stock can't get over the $200 hurdle."
    1) The stock is HEAVILY manipulated by pundits with alleged "crises". the most scurillous being the concerns about Mr. Jobs' health.
    2) We are in a deep recession with no clear end in sight. This would APPEAR to bode ill for a company that is so consumer-focussed. This neglects the fact that Apple HAS weathered the downturn well, so far and the fact that computers are almost basic necessities these days.
    3) Apple gives conservative guidance and the implication of recurring revenues from the iPhone has not been fully appreciated.
    4) People believe Enterprise with stick with MS Windows forever and ever. In my view, the annoyance factor of using Windows seems to edge up year over year; the quality of Mac OS X, in contrast, seems to improve and the relative price difference diminishes. This makes MS Windows look to me more an more like a 15 year economic "bubble".
    Reply
  •  
    Sep 03 09:39 AM
    Enterprise is switching to Mac OS X! Windows is old school like Jerry Seinfeld. Even Jerry was an Apple Macintosh User and fan!

    I'm an IT Manager that manages 99% Mac OS X. We have one PC for biometrics scanners that are old and needs a serial port on a laptop.

    Apple is heading to $650.00 a share or higher. Stay long and buy on any sell offs!
    Reply
  •  
    Sep 03 09:44 AM
    Good article. Although, having seen Mr. Ballmer act quite irrationally in the past, it occurs to me that this may not be the best endorsement to buy stock on.

    I have found many more endorsements from those that do actually know how to use antiperspirant and don't make it a habit of raging out of control on stage.

    Therefore, I am long on apple.
    Reply
  •  
    Sep 03 09:49 AM
    Tom B -

    I won't argue, but it really bugs me that a stock could be manipulated so easily. Is it pundits or is it the institutions? How can it be possible on such a scale??

    As for the conservative guidance: I can see that if it wasn't such a constant. But by now Apple's lowballs should be factored in, and the consistent performance should be rewarded.

    Thinking it's the general state of the economy seems like the most comforting explanation, as a long.
    Reply
  •  
    Sep 03 09:53 AM
    "I won't argue, but it really bugs me that a stock could be manipulated so easily."

    When they aren't running a Steve Jobs health story, they find some bug in the iPhone (ALL products have bugs; even Apple ain't perfect) and make it sound like the sky is falling.
    Reply
  •  
    Sep 03 10:18 AM
    Today, Staples (SPLS) announced 2008 Q2 profits dropped 16%. Staples said that the ONLY product that it sells that had an increase in Q2 sales is LAPTOPS.

    Apple, most likely, is doing VERY WELL. The analysts just don't know it.
    Reply
  •  
    Sep 03 10:32 AM
    I would suspect many people (including me) are unsure Apple will be able to handle the transition from being a Tiffany type computer company to a Walmart type. Can they handle the thousands of computer applications and maintain their death grip on their Operating System? Will they adapt to an open source code market? I think it remains to be seen.

    They have always enjoyed the snob effect of being above the masses. What happens when they are the masses?
    Reply
  •  
    Sep 03 12:00 PM
    Apple isnt a 'snob' company - it simply sells good equipment and software. Always has, even when some Idiots were in control. (Sculley etc.)
    Fact is, an Apple Macbook costs $1049, which is maybe $300 more than a crappy Windows laptop. Thing is, you get great FREE software with it, and way more functionality and ease of use.

    College kids are buying these things and NOT buying Windows laptops.

    Microsoft should support Apple and sell them lots of cheap copies of Windows, which, of course, you can ALSO run on a Mac.

    In life, the tides turn, and Microsoft need Apple far more than Apple needs Microsoft.

    Stock will eventually hit $250, its stuck at $170 or so, but then it did just have ten years of massive growth.
    Reply
  •  
    Sep 03 12:19 PM
    good article as usual
    makes a nice change from the general dross from other 'authors'
    Reply
  •  
    Sep 03 01:50 PM
    Apple is heading toward $650 a share and higher? Not $250, but $650!! Pass me some of that joy juice you've been guzzling. It's hardly even heading in that general direction. Hell, Google isn't even at $500. I'd think you should consider yourself lucky if Apple breaks $190 by the end of this year.

    For the so-called world's greatest computing device company, the share price sure looks to be in a fairly lackluster state, to say the least. WS looks at Apple the same way it looks at any other tech company and lumps it into the same category. Already WS has decided that Apple product sales won't be good and is sending it down. Doesn't matter how many retail stores they open, how many iPhones they sell, how much market share they gain, how many global carriers they sign. WS is sending Apple down just like Dell or RIM or HP. It's all the same. Tech is tech.

    For every bit of positive news, the media will drag out some stock debilitating news just to counter. Apple is making many enemies on WS by challenging Microsoft and RIM and the entire record industry. I don't know how Apple is going to overcome these obstacles.

    I'm curious how this quarter is going to turn out. Record breaking numbers and the stock price goes up 2% or just so-so numbers and the stock goes down 20%. Good luck to us all. I've got a feeling WS and the poor economy is going to send investors fleeing the good ship Apple this time around. Again.
    Reply
  •  
    Sep 03 02:45 PM
    "Ouch!". ....and I meant that in a GOOD way.
    Reply
  •  
    Sep 03 04:51 PM
    It would be good if Steve Ballmer would lose weight. With his red-faced, wet-armpit hyperactivity, his blood pressure must be sky-high or he's taking multiple medications. He should take a hint from Jobs and live a healthier lifestyle--if not for himself, then for his family.
    Reply
  •  
    Sep 03 06:58 PM
    I'm interested in seeing the impact on RIM & Palm. When are they due to announce earnings?
    Reply
  •  
    Sep 04 12:38 AM
    I'll bet Seinfeld just placed an order for $10 million worth of MacBooks. :)
    Reply
  •  
    Sep 04 01:02 AM
    From Dithers up above:
    "Fact is, an Apple Macbook costs $1049, which is maybe $300 more than a crappy Windows laptop."

    AND...wait a second....that MacBook will also run Windows.....BETTER and FASTER than the comparable Windows machine! So in fact, you are buying TWO MACHINES FOR THE PRICE OF ONE!

    THIS IS NOT ROCKET SCIENCE.

    Maybe not $650, but I'll bet when the next quarterly report comes out, $250-$275 will not be out of the realm of possibility. You heard it here first.
    Reply
  •  
    Sep 04 08:22 AM
    Microsoft had some good products. I wish instead of chasing so hard trying to imitate Google, trying to shore up their own failure on the web by buying the success of Yahoo, and spending 300 million on ads to combat Apple's innovation they just focused resources on using their own creativity and making their own products better.
    Reply
  •  
    Sep 04 10:06 AM
    Which company is most likely to be the first to $1 trillion in market cap.?
    Apple is! The potential growth ahead for most of its product lines is enormous. Its Mac line could grow to 100 million a year. Its Iphone could double that. It still would only have a small piece of each of those pies. The most important thing to note is that it could easily happen by 2011.
    Reply
  •  
    Sep 04 10:17 AM
    "Microsoft had some good products. I wish .... they just focused resources on using their own creativity and making their own products better."

    OS-wise, I think it's too late for them. After 20 years of duct-taping more dubious "features" into Windows, it now needs a complete, start-fresh re-write. That is essentially what Apple is now benefiting from, by returning Job's NeXT, Inc. to Cupertino in -- when was it?--1998?

    Can MSFT FIX Windows faster than independant software vendors can port/re-write Enterprise apps fro OSX? I don't see it. And, in the mean time, Apple can sell MacBooks with VMware, to give the 3rd party software vendors more time to transition to Mac.
    Reply
  •  
    Sep 04 11:46 AM
    and with a Mac, you don't need to buy virus protection either...which saves money, not to mention teeth grinding aggravation, lost data and time.
    great article!
    when i heard about Seinfeld, all i could think was that he might offer some comic relief... and users of Vista could use some!
    Reply
  •  
    Sep 04 01:41 PM
    Monkey Boy. Ballmer will always be Monkey Boy.
    Reply
  •  
    Sep 05 06:45 AM
    Apple is definitely a fantastic company. Ballmer's ability to lead MSFT is questionable.

    Taking over for Bill Gates, though, is a tough task.

    Taking over for Steve Jobs will be a tougher task.

    I like AAPL now but those of you claiming it is a long-term buy and hold opportunity ($650 range folks) need to address the issue of Apple's post-Jobs era.

    If you think Ballmer is getting it pretty bad (in terms of criticism), just wait till Apple's next CEO takes over and (in all likelihood) can't do as good a job as his predecessor.

    Disclosure: Not play on AAPL or MSFT
    Reply
  •  
    Sep 05 11:40 AM
    Disclosure: I'm an IT professional and I DON'T care for Microsoft products. I think Apple offers a far superior operating system along with other products.

    However, Apple is Apple. Always the promising company that will always be... second. As it was said, Microsoft can't be beaten in the O/S arena unless they make a mistake.

    I have no idea what imurphit is talking about... I work for a Fortune 500 company and have contacts with many others of the same caliber. None is switching to Apple. None. Why would they do that? Again, only if Microsoft blows it. Maybe Vista was a mistake, but what does the author think? That corporations will give up their Windows XP's to Macs? Hardly. What I hear is about skipping a Windows version, but switching O/S is not on anyone's radar.

    Finally, read my disclosure on the first line.
    Reply
  •  
    Sep 05 06:42 PM
    @Constable Odo: dude is right - 650 is not a stretch. They just opened up the iPhone market to most of the globe, where it used to just be the U.S. That alone is worth 100/share. Mac sales are growing at twice the rate of the PC market. AAPL is vastly undervalued. Given current market conditions, I don't believe 650 will happen this year...but you will see 400 to 500 by 2010. BTW, the guy who "knows" is Gene Munster...he is the bona fide AAPL analyst - gets it right every time! Look him up.
    Reply
  •  
    Sep 05 08:20 PM
    Constable Odo

    "Doesn't matter .... how many iPhones they sell, how much market share they gain, how many global carriers they sign."

    I know what kind of "joy juice" I drink---everyday Miller Lite---but I'd really like to know what kind of Wacky Tobbaccy/recreational drugs you're on.

    It DOESN'T MATTER? Really? Let's see if Apple's share of the computer market goes to say 16% from their recent 8% the ensusing profit WON'T Matter? If iphone sells say 25-30 MILLION phones in 2009---well under some predictions---it WON'T matter? Let's not even consider Software, ipods, the iphone app store, BECAUSE you claim it WON'T matter!

    Wow, I've seen lots of assinine Apple bashes but you get the prize, at least for the present.

    "For every bit of positive news, the media will drag out some stock debilitating news just to counter. Apple is making many enemies on WS by challenging Microsoft and RIM and the entire record industry. I don't know how Apple is going to overcome these obstacles."

    Ohhhhh, I bet Apple is quaking in their boots regarding big bad WS & especially those whores at the record companies. The aforementioned will do ANYTHING for a buck, when they see which way the wind is blowing they will grasp their ankles & scream ME ME just like they always do.

    As far as MSFT is concerned, they can't do anything but copy Apple products---Zune me up Scotty---and poorly at that.
    Reply
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