Deteriorating profit margins at Apple Inc. have helped to send the company's stock below its 200-day moving average, an important technical indicator suggesting weakness ahead. The trend may give Research in Motion Ltd. shareholders a disturbing case of déjà vu.
While high-flying Apple is far removed from struggling RIM, the recent direction of one key indicator does suggest grounds for concern. The company's return on equity has been fading in recent months – just as it did at RIM when it started its decline.
The BlackBerry maker began its meteoric rise in 2003 as its ROE climbed out of negative territory and steadily rose to a peak of 43.9 per cent in September of 2008.
The slide in the company's ROE coincided with the incursion of the iPhone into Blackberry's territory and a series of desperate measures by RIM management to regain market share. Four years later, RIM's ROE stands at a disappointing negative 6.4 per cent.
Is Apple next? The past two quarters have seen an erosion in its ROE to 43 per cent from 47 per cent (see chart at left). Its introduction of an iPad mini was met by general indifference beyond Apple's most dedicated fans. For cynics, the iPad mini carried with it a whiff of the same strategic defensiveness that marked RIM's less than impressive foray into the consumer market with devices such as its BlackBerry PlayBook tablet.
Apple CEO Tim Cook is aware of RIM's decline and will be unlikely to make the same type of mistakes. But the impact of Steve Jobs' death – and with it, the loss of possibly the best practitioner of industrial design in business history – is hard to calculate.
Apple retains Jonathan Ives, the genius behind the look and feel of many of its recent hits. Unlike Research in Motion, it has developed a highly profitable media distribution ecosystem centred on the iTunes platform. The recent fall in Apple's share price may be a temporary blip.
Still, the stock's fall below its 200-day moving average and declining ROE are not encouraging signs. With the case of RIM visible in the rear view mirror, Canadians who have large gains on their Apple shares may want to lighten up on their positions.
Scott Barlow