Tuesday, 18 January 2011
Six sentences… That’s all it was. The “explanation” of Steve Jobs‘ illness, as he takes leave of Apple, Inc. (AAPL:NASDAQ) yet again, was only six sentences long.
That should leave more than a little concern in investors’ minds about the direction of Apple’s stock price. But Apple has never been just a “chart” and value stock. It’s been a Jobs stock, and he may be more important to the company’s overall performance than its latest earnings report.
Over the past seven years, Jobs has had to “leave” his position twice as CEO of the world’s most prized tech company to deal with health issues. Apple, which was founded by Jobs and his then partners Steve “Woz” Wozniak and Ronald Wayne, has been built on their pioneering spirit and ingenious designs and ideas.
The early days of Apple can be categorized as trend setting and industry changing in many regards. Apple can be attributed with the mass implementation and acceptance of the graphic user interface (GUI), which was one of the main catalysts, in my opinion, that brought computing to into the mainstream. Of course, the GUI had to be combined with something cool to control it, which was, of course, the “mouse,” which was created by Douglas Engelbart (who also had a hand in the precursor to GUI) and Bill English.
Bill English, who worked for Xerox, invented the ball mouse and it was included in the first computer by Xerox in 1981. But it wasn’t until Apple’s Lisa and Macintosh computers that the “mouse” actually found its true place in the computing world.
Steve Jobs Integral to Apple Success
According to many experts, much of the company’s recent success is due largely in part to the intellectual capital, ingenuity and management style of Jobs himself. His return from Pixar and NeXt (which was purchased by Apple) in late 1996 marked a renaissance for the then ailing company. Almost immediately he brought big changes and profitability back to the company and introduced the iPod and iMac products, which were both enormous successes.
When he stepped aside as chairman and CEO during times of illness, investors like me liked to believe he still had input on the design and marketing of his products, but his absence, even with that belief, affected the stock in a negative way.
This thesis can perhaps be confirmed in the stock price if you look below at the quarterly chart of Apple’s stock going back to its first days of trading with and without Jobs at the helm; his presence has had more of a positive net effect than without it. (The sections in green show Apple’s performance with Jobs.)
There is no doubt that when Steve Jobs stepped on stage and presented a new or updated product to the world, it was a show that even P.T. Barnum would envy.
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The Third Major Leave in Less Than Seven Years
According to The Wall Street Journal, William Chapman, a transplant chief at Washington University, hypothesized two potential scenarios for Jobs’ most recent health issue…
The first theory is an issue with the year-and-a-half old transplant itself, which Dr. Chapman believes is not probable.
The second scenario, which he believes to be more likely, is that the neuroendocrine tumor metastasized again, which could present another very serious potential hurdle for Jobs to overcome. Even with a complete transplant of the affected tissue, cancer does not have a cure and can recur anytime.
Personally, I wish Mr. Jobs a complete recovery and am hoping all the best for him. Running a company like Apple is no easy task and most certainly requires an extremely high level of energy and activity, which can be trying for anyone, let alone a cancer survivor and liver transplant recipient.
Jobs and Apple have traditionally been secretive about their products, events, earnings and just about everything that is Apple, aside from the required SEC filings and announcements required by law and the exchanges, but details of a potential serious illness concerning the head of a company at its zenith should not be withheld.
What Happens to the Apple Stock?
While his past two health absences resulted in short-term bearish behavior in Apple stock, the third time will most likely not be a charm, as investors really become more and more concerned about the true severity of his state of health. In the past, Jobs and Apple have mostly shrugged off the specter of serious illness, until January 2009, when a “hormone imbalance” became the need for a much more serious liver transplant. Remember in 2004 he disclosed that the procedure to remove his tumor went off without a hitch, without the need for chemotherapy.
I have been an admirer of Jobs, Woz, Apple and their products and stock for a very long time. My fear of a worst-case scenario is more realistic now than it has ever been in the past. I can understand the company’s desire to minimize shock to investors, but the fact that a potential life-threatening illness is affecting their CEO and master should garner more than a six-sentence explanation, which is all that we have right now.
Apple is no doubt still a darling in the eyes of many, but in my mind, the expectations (for earnings) are high and while the near term may only bring a minor pullback on this news, the lack of any real explanation scares the heck out of me as an investor.
I have put my faith and trust in a man whom I consider a genius, and while the mystique of Apple has made the company “cool,” now is not the time for silence.
So much of Apple’s earnings expectations are already built into its stock price. I have no doubt that today’s earnings report will be anything less than stellar (and probably for most of 2011), but beyond that, if Jobs does not return, those $1,000 price targets that some folks have been slapping on the stock may vanish quicker than the traders willing to pay up for the stock.
Right now, this is all speculation; several analysts believe that a complete Jobs departure would have minimal impact on the company’s sales and stock price. I beg to differ. As a trader who has made my living measuring not only the success of companies, but the sentiment and belief that investors place in them, I cannot expect a management team to be as complete or creative without Steve Jobs.
The next couple of months will be critical; we will be able watch the executives at Apple and see how they step up to the plate and if they continue to innovate, shock and inspire us, as Apple has managed to do over the years. The framework is certainly there, but the bar set by Jobs may be tough to surpass.
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Other Related Topics: Apple , Jared Levy , Smart Investing Daily , Steve Jobs , Stock Market Analysis , Technology Industry
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