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Microsoft Corporation (MSFT) Is Cool, While Apple Stock Is Old School

Lou Carlozo

Wall Street loves its digits as much as Silicon Valley loves its digital. And if you own stock in Apple (ticker: AAPL), everything's adding up faster than the bill on a tricked-out iPhone.

Last week the stock hit an all-time high, its momentum spurred by a big bet from billionaire Warren Buffett. His Berkshire Hathaway ( BRK.A, BRK.B) nearly quadrupled down on Apple stock in the last quarter of 2016, going from 15 million to 57 million shares. And Buffett's following among investors is every bit as rabid as the late Steve Jobs' in high-tech.

Yet things have changed a great deal since Jobs passed away in 2011 -- a time when Microsoft Corp. ( MSFT), a company long anchored by his rival Bill Gates, had already fallen from undisputed leader to unlovable laughingstock. Since bumbling CEO Steve Ballmer left Microsoft in 2014, the Seattle-area tech pioneer has quietly crept back to a place of respectability. On the investment side, MSFT has enjoyed an uninterrupted run-up over the last three years, its value rising more than 130 percent. It trades at about $65 per share.

[See: 10 Ways You Can Invest Like Warren Buffett.]

But here's where things get intriguing: For their shared status as profitable tech dinosaurs, the two companies may not stand on equal footing when it comes to innovation. That's huge because while some sectors can easily accommodate companies that don't innovate, high-tech is definitely not one.

And guess what? After decades of being ridiculed -- even in Apple's infamous "Mac versus PC" ads -- Microsoft may actually have the upper hand.

Experts point to a number of savvy moves Microsoft has made under Satya Nadella, who took over the CEO reigns in February 2014, as key to turning around the company in the public mind.

Microsoft's new focus on cloud computing and productivity apps is on point, says David Lavenda, co-founder and vice president of product strategy for harmon.ie.

"Rather than making money from one-time Windows OS sales, Microsoft now collects recurring revenue from Office 365 and from all the Azure services that help support that world," he says. "A side effect is that they're selling more Windows devices, because with the dual PC/tablet it's more convenient to use one device than carry several."

Lavenda adds that Nadella, unlike his predecessor, grasps how technology intersects with people's lives 24/7.

"People don't want to use different tools at work than they do at home: Why would they? So, creating one product line for both with consumer-enterprise flavors makes perfect sense," he says. "For example, Skype and Skype for Business, One Drive and One Drive for Business." As a result, "Microsoft has used its head start in the business market to head off competitors such as Google ( GOOG, GOOGL)."

[See: High-Tech Investing: 7 Sectors to Watch.]

"Nadella brought focus and boldness back to Microsoft," adds Michael Fauscette, chief research officer at G2 Crowd, a Chicago-based software services and solutions review website. "He walked away from bad product decisions, shored up winners and pushed teams to find new winners. And maybe most importantly he reorganized in more vertically oriented teams and eliminated some of the infighting."

Meanwhile, "The issue with Apple is that they have become risk averse and have started to focus ever more tightly on increasing prices while lowering costs," says Rob Enderle of the Bend, Oregon-based Enderle Group. "They are effectively mining their customer base -- which is a sure sign of both a legacy company and a coming decline."

"Apple has turned into a legacy company at this point," says Amr Swid, an assistant professor at the New York Institute of Technology. But perhaps that's a nice laurel to rest on. "Their innovations in past years have gained them an incredibly loyal customer base willing to buy every new Apple product, even if it's not as innovative or creative as the iPod or iPad were when they first came out," Swid says.

In fact, there's an argument to be made, at least from a PR standpoint, that the two longtime rivals have switched places. Current Apple CEO Tim Cook may be an astute businessman, but under his watch Apple has made some gaffes that would actually make Ballmer -- once rated by Forbes as America's worst CEO of a publicly traded company -- look good.

After introducing larger and larger iPhones since the product debuted in 2007, Apple went in the opposite direction for the first time ever last March, a nod to how much consumers preferred the compact iPhone 5 series over the bulky iPhone 6 models. Then came the iPhone 7s, which drew scorn from consumers and reviewers alike when Apple decided to get rid of the headphone jack. It didn't make matters better when Apple marketing chief Phil Schiller made the company the butt of social media jokes after he said the move took "courage."

"Recall that Jobs largely selected Cook because Jobs wanted to come back as CEO -- and believed he would," Enderle says. "He wanted someone he could easily overshadow. Cook wasn't Jobs' heir, really, he was Jobs' temp and thus just doesn't have the passion and focus a company like Apple needs. But he is operationally good enough to keep the company floating."

Floating may be putting it mildly. Apple's soaring stock prices and push to dominate burgeoning smartphone markets in India and China could add to its cash stockpile. Still, it no longer has the smartphone market to itself, as it once did. And all around Apple, and Microsoft for that matter, the consumer high-tech field is getting packed.

[See: 7 Things That Happened When Donald Trump Met With Tech Leaders.]

"Watch out for Amazon ( AMZN)," says Mark Clifton, CEO and president of Princeton Identity, an iris recognition technology company. "As of late, the company is truly disrupting the technology market through the launch of drones and home voice-assistant Alexa. They've integrated a unique strategy that Google can't touch, Microsoft is chasing and Apple is ignoring. How well did Apple monetize Siri? How well did Amazon monetize Alexa? The race is on."



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