Google (GOOG)
Becomes the World’s Second Largest Tech Company
This week, search giant Google’s (GOOG) market cap surpassed
Microsoft (MSFT), leaving the former market heavyweight further
behind in a next generation race dominated by Apple’s (AAPL) iOS
and Google’s Android devices. Google’s market cap has now grown to
approximately $249.2 billion, edging past Microsoft’s $248.7
billion valuation. Many analysts view this decline as a sign of
the times, with Microsoft’s traditional power base of desktop and
laptop machines being disrupted by a new generation of tablets and
smartphones operating on cloud-based applications.
Daily Chart
Weak earnings from Hewlett-Packard (HPQ) and Dell (DELL) have
confirmed this trend, which reflect a decline in traditional PC
business on both the hardware and software levels. Wedge Partners
analyst Martin Pyykkonen commented, “The transition here is pretty
straightforward in terms of where things have moved to and
certainly that’s cloud, that’s Web. Today, only Apple’s market cap
of $632.9 billion tops Google in the technology sector.
When Apple passed Microsoft in 2010 to become the world’s largest
technology company, Microsoft CEO Steve Ballmer quoted Benjamin
Graham, stating, “In the short run, the market is a voting
machine, but in the long run it is a weighing machine.” At the
time, Ballmer assured journalists and investors that Microsoft was
intrinsically more valuable than either Apple or Google. However,
based on current trailing P/E ratios, Microsoft, Apple and Google
are all fairly valued with respective ratios of 14.8, 15.7 and
22.5 – none of the stocks are fundamentally overvalued.
Ironically, it appears that Ballmer was right – in the long run
the market has fairly weighed these companies against his own.
In 2008, Ballmer famously mocked Google’s newly acquired Android
operating system, commenting, “If I went to my shareholder meeting
and said: Hey, we’ve just launched a new product that has no
revenue model, I’m not sure that my investors would take that very
well. But that’s kind of what Google’s telling their investors
about Android.”
In the most recent quarter, Google’s Android operating system
powered 52% of smartphones worldwide, up from 43% a year earlier.
Apple is currently in second with 19%, while Microsoft has a tiny
footprint of 2.7%. Meanwhile, Google controls 66% of the U.S.
search market, while Microsoft’s Bing search engine holds 16%,
despite Microsoft’s best efforts to coin “Bing” as a verb through
product placement and advertisements. Google is also on track to
overtake Facebook (FB: Charts, News) in the U.S. as the largest
outlet for display advertising.
Google’s cloud-based Apps are also challenging Microsoft’s
traditional revenue source from Office software, while its
fledgling Chrome OS has been recognized as a threat to Microsoft’s
core of Windows operating system revenue. Windows sales have also
plunged as customers choose Android and iOS tablets over lower end
Windows laptops. New hybrid tablets, which can be converted into
laptops, such as Asus’ Transformer series, have also become a
threat to traditional systems running Windows 7.
Microsoft has recognized this threat, which it intends to address
with Windows 8, which is designed specifically for touch-screen
technology. Microsoft’s new Surface tablet, which runs on the new
operating system, is also intended to compete directly with iOS
and Android devices. Google has also introduced its own tablet,
the Nexus 7, which is intended to compete directly with Amazon’s
(AMZN) Kindle Fire tablet, the best-selling Android tablet in the
United States, rather than Microsoft’s Surface.
Wednesday, October 3, 2012
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