KuwaitGeekz

Apple’s iPhone business alone is now bigger than Microsoft.

Not Windows. Not Office. Microsoft.

Think about that.

The iPhone did not exist five years ago. And now it’s bigger than a company that, 15 years ago, was dragged into court and threatened with forcible break-up because it had amassed an unassailable and unthinkably profitable monopoly.

The iPhone also appears to be considerably more profitable than Microsoft.

In the December quarter, Apple’s iPhone business generated $24.4 billion of revenue. Microsoft’s whole company, meanwhile, from Windows to Office to servers to XBox, generated $20.9 billion.

If we assume that Apple generates the same operating profit margin on its iPhone business that it generates on its overall business–38%–the iPhone business generated about $9.3 billion of profit in the December quarter.

All of Microsoft, meanwhile, generated only $8.2 billion.

It was not long ago that Microsoft CEO Steve Ballmer was fending off those observing that Apple’s market capitalization was closing in on Microsoft’s by saying that, regardless of market cap, Microsoft’s business was much bigger and more profitable.

Not anymore.

Now, Apple’s business (in Q4) is more than twice the size of Microsoft’s–$46 billion to $21 billion–and more than twice as profitable: $17 billion to $8 billion.

And, needless to say, Apple’s market cap now dwarfs Microsoft’s. (Although, interestingly, Apple’s market cap is not yet 2X Microsoft’s, despite the difference in revenue, profitability, and growth rates. The market still appears to be concerned that Apple’s “closed system” is vulnerable to the same sort of disruption by Android and other more open systems that Apple’s Mac business was back in the 1990s).

What’s just as remarkable here is that Apple invented the iPhone business out of thin air in 2007. This is not an old product category. It’s a completely new one. Which means that Microsoft or anyone else could have invented it.

(The same can be said for the more recently introduced iPad, which is now cleaning Microsoft’s clock in that category, too.)

For the first decade of Steve Ballmer’s reign at Microsoft, some folks cut him a break for the company’s stagnant stock price by observing that the market had changed. But the market changed for Apple, too, and Apple innovated two huge new product lines, one of which is now bigger and more profitable than Microsoft’s entire business. So Steve can’t be cut a break for that anymore.

Microsoft just plain missed these markets (iPhone and iPad). And Apple created them. And it turns out that, at least for now, they are much more valuable and lucrative markets than the ones Microsoft dominated.

The other mistake Microsoft made, one that ultimately could be far more devastating, is that it became obsessed with the wrong competitor.

For the past decade, Microsoft has obsessively targeted Google as Enemy No. 1, blowing more than $10 billion trying to compete with Google’s amazing search engine.

Microsoft has made some progress, but not much–and it is still losing $2 billion a year on the effort. And, meanwhile, a once-forgotten company has blown past it in business lines that much closer and more threatening to Microsoft’s core businesses–Apple.

Microsoft still has a strong hold on the enterprise market, and it may now be able to rededicate itself to that market and try to withstand the Apple and Google onslaught.

But regardless of what happens, Microsoft can only now look up in awe and realize that a product that was introduced 5 years ago and that Steve Ballmer famously dissed is now larger and more profitable than Microsoft’s whole company.