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Microsoft stock has outperformed Apple by 13 per cent since the beginning of the third quarter. Given the change in culture at Apple since Steve Jobs' death, this may signal the beginning of a long-term trend.

Apple's brilliance is unquestionable, but it has been almost entirely confined to products oriented at retail consumers. The ascension of Tim Cook – formerly the head of the company's operations department – to become the CEO, along with the departure of prominent executives from the product innovation areas, have some industry-watchers concerned that Apple's culture is changing from one emphasizing innovation to operational blocking-and-tackling. The death of Steve Jobs, arguably the greatest creative force in business history, still looms over the company's future.

Despite Microsoft's stodgy, lumbering image and slower growth, its products remain deeply embedded in the IT networks of the vast majority of companies. In stark contrast to Apple, 70 per cent of Microsoft's revenues are generated from business spending. And its Server and Tools business, where the company benefits from the rapid growth area of cloud computing, is growing by 10 per cent a year. That fact alone underscores the diversified revenue streams of the company.

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In terms of earnings yield – total profits per share divided by stock price – Microsoft at 9.1 per cent is also 2.3 per cent cheaper than Apple. This means that if current patterns hold, investors in Microsoft will receive more profit per share.

In choosing between the two companies, investors with a three-to-five-year time horizon must answer the question, Who is most likely to disappoint? Apple's declining profit margins, which in hindsight were the first signs of Research in Motion's fall from grace, indicate that the post-Jobs Apple may already be struggling to maintain growth levels. To stay dominant, Apple must continually reinvent the consumer-electronics wheel, as the novelty of the iPhone erodes, and competition from Samsung and Google's Android intensifies. By contrast, Microsoft's margins are also declining, but remain almost twice as high as Apple's. More importantly, Microsoft's more diversified business model, less exposed to the fickle nature of retail consumers, provides opportunities in a wider variety of technology subsectors.

Investors rightly view Apple as a better managed company than Microsoft, the latter having so far failed to transition the Windows platform from desktops onto mobile devices, among other missteps. And with its formidable and growing entertainment and gaming division (specifically, the Xbox console and related online service, Xbox Live), Microsoft hasn't entirely decoupled from the fluctuating fortunes of the retail consumer. But investors should remember that the best company is not always the best stock. Outperforming the market is often a matter of choosing companies with improving prospects, regardless of starting point, and avoiding those where the outlook is becoming more difficult. These days, Microsoft is looking more like the former, and Apple more like the latter.

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