Look. Apple doesn’t obey the ‘law of large numbers.’ No company does.

25 Oct 2015 | Author: | No comments yet »

Ballmer Says ‘People Don’t Want to Work’ at Amazon.

The market’s reaction Friday to the latest earnings results from Google, Amazon and Microsoft (read Fortune’s coverage here, here and here) got reader Carl Lambert—who posts here as RadarTheKat—thinking about the “law of large numbers,” one of the most abused phrases in business journalism. (See below.) “Among the arguments why Apple shares cannot outperform the market or its peers has been the oft repeated law of large numbers; the claim that Apple is too big to meaningfully grow and that its market cap, at nearly $680 billion, is so big that there aren’t enough investment dollars to move the needle. “But last night the market unwittingly provided an irrefutable counter argument by taking the combined market caps of Google, Amazon and Microsoft to $949 billion. Lexmark International Inc. hired Goldman Sachs Group Inc. to explore strategic alternatives after the computer-printer maker’s stock had dropped 20 percent for the year.Greenhill & Co., the merger-advisory firm founded by ex-Morgan Stanley banker Robert Greenhill, fell the most since 2013 after third-quarter profit plunged amid delays in deals being completed.Microsoft has the upper hand in its “intense competition” with Amazon.com for talent and is the only company that can compete with Apple over hardware, said former Microsoft Chief Executive Steve Ballmer. “I think they (Amazon) are a place people don’t want to work,” he said in an interview Friday on Bloomberg TV.

The market seems to have no trouble adding $70 billion to these three companies, whose combined profits are a fraction of Apple’s, but won’t allow the same for a single company. “It was Microsoft’s year 2000 valuation, north of $600 billion at the peak of the dotcom bubble and stagnant for the decade thereafter, that has since been used as the poster child for what happens to the company with the world’s highest market cap. No timetable has been set and there is no assurance that the move will result in a transaction, the Lexington, Kentucky-based company said in a statement Friday. “While the board is encouraged by the company’s future prospects, the board does not believe Lexmark’s current share price fully reflects the intrinsic value created by the company,” Jean-Paul Montupet, the company’s lead director, said in the statement.

The New York Times story, published Aug. 15, characterized Amazon as “a bruising workplace,” where overworked employees cry at their desks, are criticized for not being available on vacation, and scheme against each other to climb the corporate ladder. The street is convinced that will be Apple’s fate. “What the market doesn’t seem to understand is that vertically integrated Apple, in terms of the profits it generates and markets it addresses, is equivalent to the entire PC industry of the 1990s, including Microsoft, Sony, Toshiba, IBM’s PC division, Compaq, HP, and all the other PC makers. Amazon CEO Jeff Bezos has since shot back on the newspaper’s depiction of the company’s culture, noting in an internal memo that employees “would be crazy to stay” if the details in the story were accurate. “I know I would leave such a company,” he added. As the two biggest tech companies in the Seattle area, Microsoft and Amazon are in fierce competition for employees, Ballmer acknowledged. “Remember, it’s not Silicon Valley where everybody’s moving between every company all the time,” he said. “Many, many people round trip—not everybody—but many people round trip.”

The stock rose 7.2 percent to $35.25 at the close in New York, marking its sharpest gain in a year and giving the company a market value of $2.2 billion. The Seattle-based company didn’t immediately respond to a request for response on Ballmer’s comments. “If there’s going to be any competition at all from Apple, it’s going to come from Microsoft,” he said, citing the Surface Book laptop introduced this month. “The Surface Book is not either an iMac or an iPad but it’s a new category. Chief Executive Officer Scott Bok told analysts Thursday that some deals that the firm helped arrange are delayed because of regulatory oversight, stalling fee income for the company. He said Dorsey’s decision Thursday to give a third of his company stock back to employees was “incredibly altruistic and shows great faith in the company.” It states that the probability of an experiment—the average roll of a die, say—achieving the expected result increases the more times the experiment is performed.

It has absolutely nothing to do with how big a company has grown.” There ought to be a phrase for the self-evident truth that any company that’s growing faster than the economy as a whole can’t do so forever because eventually it would have to become larger than the economy it’s part of.

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