Apple revenue will likely top Microsoft during Q2

Second quarter is just days from finishing. In the home stretch, could Apple generate enough revenue to top Microsoft? Strong iPhone and, particularly, iPad sales should make the difference. Apple's ascension and Microsoft's descension would mark a turning point in computing eras. Microsoft represents the past -- PCs tied to the Office-Windows-Windows Server applications stack. Apple represents the future: mobile devices and applications connected to the cloud.

I have raised the Apple-overtaking-Microsoft-revenue topic before -- 10 days ago when Apple announced 2 million iPad shipments and on April 23, after both companies announced first-quarter earnings. Yesterday, Apple announced that it had sold -- parlance for shipped -- 3 million units, or another 1 million units in the previous 9 nine days. At that rate, Apple could conceivably add another 500,000 units before quarter's end. I'd say 1 million, but tomorrow's iPhone 4 launch almost certainly will be friction against iPad, if no other reason than how busy Apple retail stores will be.

Wall Street revenue consensus for both companies is close enough to assert Apple could -- I believe will -- top Microsoft during second quarter. Following the companies' Q1 earnings announcements, on April 23, Wall Street analyst consensus for Microsoft revenue was $15.24 billion, with an estimate range between $14.59 billion and $15.91 billion. Apple was $13.7 billion with a much broader range of $11.6 billion to $15.08 billion. Today, the average analyst consensus for Apple is $14.37 billion, with a range of $13.32 billion to $15.08 billion. For Microsoft: $15.22 billion, with range of $14.80 billion to $15.72 billion. Over the last couple quarters, Apple revenue came in well above consensus -- nearly $1.5 billion in first quarter.

Apple estimates changed little from April 23 or my last post about this topic on June 3. I'm convinced that Wall Street isn't strongly enough factoring iPad into their revenue estimates. Assuming just $500 revenue per device, Apple opened a new product line worth $1.5 billion. My estimate is conservative. I expect that late availability of 3G-capable iPads fueled the previous nine days sales surge. Their starting prices are higher: $629 versus $499 for WiFi-only models. I would expect a more realistic conservative average selling price of $600, adding a new line of revenue worth at least $1.8 billion during Q2.

Then there is iPhone. Last week, Wall Street analysts rushed to up their iPhone shipment forecasts, after Apple announced 600,000 preorders in just one day. Right now, the only barrier to strong end-of-quarter iPhone sales is Apple's ability to ship them.

Yesterday, Andy Zaky (aka Bullish Cross) offered his estimates for Apple during second quarter, which is the company's third fiscal quarter. Zaky has consistently been on target in his Apple estimates, much better than many Wall Street analysts. He forecasts $15.371 billion revenue, which is higher than the Street's consensus for Microsoft. My gut reaction to the numbers: Even Zaky is estimating too low.

Looking at the quarter, Microsoft rather than Apple is more likely the wild card. I expect Apple revenue to come in on the high end of consensus and more likely above. The question: Could Microsoft blow past Street consensus? Definitely, yes. PC sales are way up, and Microsoft launched Office 2010 during the quarter. Meanwhile, second quarter is typically Microsoft's biggest for annuity licensing contract renewals from larger businesses. If Apple doesn't top Microsoft, it will be because Microsoft far exceeded estimates. Apple will top analyst consensus, I predict.

A New Computing Era Dawns

Should Apple revenue top Microsoft, it would mark the real changing of computing eras. In a public presentation I made for Jupitermedia in November 2003, I identified three past and one future computing era: Mainframe (1960-1981); Productivity PC (1982-1996); Internet PC (1997-2002); Mobility and Entertainment (2003+). That future era is now.

Earlier this week, Microsoft asserted that 1 billion people use Office. The PC install base is only about 1 billion, and surely not every one of them has Office. I suppose Microsoft could jack up the numbers by counting all the people in a household using a PC with Office installed on it. While the number sounds large, the mobile phone market is larger and growing. Analysts put the number of worldwide mobile subscribers at 4.6 billion or more than four times the size of the PC install base. Yearly phone sales exceed the entire PC install base.

Some Betanews readers balk at the idea mobiles will replace PCs as primary computing devices. Yesterday in comments, rrode74 asked:

So I am going to trade in my dual monitors at home and work to do what I do on a mobile device? Is that mobile device going to hold my photos, and videos, all 400gigs of them, and growing? Will I be able to do what I do in Final Cut express or Vegas Movie Studio with my video work? Is my data center going to be filled with racks of mobile devices powering my email system that has over a terabyte of email?

Commenter moucon2 gave an excellent response:

Why would you need your phone to hold 400GB of data when it can connect to the cloud continuously? Time to re-think that. We content creators with our Final Cut Pros and dual monitors are a tiny fraction of the market -- most people consume professional content and create clips and blips for their own enjoyment The ave Joe can easily edit enough video or tweet enough tweets on his/her iPhone to upload it to the social media du jour. The iPad is plenty good enough to create your typical 'article' or even a household budget/spreadsheet. Desktop and laptop computers are buggy whips for those folks.

PCs won't go away, but their relevance will diminish. Whether Apple revenue tops Microsoft in second quarter or another, change is coming and it's inevitable. Each computing era is a progression of the past one, and they all share something in common: Widening the availability of information to more people at greater ease and lower cost. This is true of the mainframe compared to paper, the PC to the mainframe, the Internet-connected PC to the non-connected computer and the mobile device to the PC. Apple's revenue ascension over Microsoft is merely a symbol of the dramatic changes now underway.

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