Market Overview

Why Apple might be the next RIM

I love Apple. I really do. There's no company in the world that makes better consumer products, but… yes, there's a but… I think this is the beginning of the end.

Right now, they're a media darling. Apple products are flying off the shelves. Analysts are coming out with trillion dollar valuations. The stock price has shot up 50% in three months.

But, let's not forget that RIM was once flying high too. Between 2005 and 2009, their market share almost doubled (source) and with it, their stock price more than sextupled from $23 to $145. They were a Wall Street darling and everyone loved their Crackberry. They were a big deal. Now look at them.

Here are three reasons, Apple can easily become the next RIM:

1. The Golden Goose is gone.

RIM's golden goose was push email. That little red light was like crack. It flashed when you had a new email and with each new flash, a whole host of endorphins were released and people loved it. Most importantly, push email was unique to RIM. But, over time, competitors like Apple have been able to replicate this system without infringing on RIM's patent.

Apple's Golden Goose was Steve Jobs. He was the visionary that took Apple from the brink of collapse to the powerhouse it is today. He had the foresight to see that mobile phones would cannibalize their iPod and therefore decided to launch the iPhone. He had been the measure against which every product is checked.

Now that he's gone, it's hard to see someone taking his role as that measure, that visionary who saw where the market was going and pointed Apple in the right direction.

It should also be noted that Steve did his best to ensure Apple would continue innovating after his departure. He brought in business professors to codify their internal processes to help the company succeed without him. While in theory this sounds great, I do have reservations about it. In practice, you may have those guiding lines and they'll help a bit but they won't have the same impact as having a strong product-focused leader.

Recently, Tim Cook has taken over as CEO. Tim is an impressive individual and has been an amazing COO. But, he's an operations guy, not a product guy. As Steve Jobs said,

“Lots of companies have tons of great engineers and smart people. But ultimately, there needs to be some gravitational force that pulls it all together. Otherwise, you can get great pieces of technology all floating around the universe. But it doesn't add up to much.”

I personally have major doubts that Tim Cook can be that gravitational force but I would love to be proven wrong.

2. It's become a momentum stock.

As I mentioned above, Apple stock has risen 50% in the past three months but there hasn't been any major news that we can correlate to that jump, not even the dividend announcement. We strongly agree with Aswath Damodoran that this indicates that the biggest reason Apple's stock is rising is because it has in the recent past.

On top of this, it's become a favourite amongst institutional investors. This is a group of people known for buying stocks that have gone up and selling those that drop.

All of this adds up to to Apple starting to become priced for perfection. That means one bad quarter and speculators can jump ship quicker than you'll finish this sentence.

RIM had this same issue. Investors were fickle. They loved it when earnings report after earnings report topped expectations but as soon as it didn't, boom went the dynamite.

3. Consumer tastes are fickle.

Innovating to keep up with trends is difficult for any large company. This is something that RIM struggled with and is struggling with to this day.

This ties back to my first point. Since Steve was the golden goose who ensured Apple innovated, the question comes back to whether they can continue to be at the forefront of technology and define product categories without him. On the whole, consumers are fickle. There may be more of a brand affinity to Apple products than Blackberrys but for the mainstream consumer, they're always going to gravitate to the best product, regardless of brand.

It's very easy to see that with the speed of technological innovation, Apple could be quickly swept under the rug in much the same way RIM has been.

Conclusion

I wrote this to illustrate how quickly a tech titan can fall and it can even be those we cherish most. There's been a lot of fanfare recently about Apple and providing a contrarian viewpoint can often help bring things in perspective.

Apple is a great company but realistically, can they continue like this ad infinitum? History says no. What do you say?

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Trading Ideas

 

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