Posted by: Arik Hesseldahl on July 23
John Markoff in today's New York Times follows up on all the speculation regarding the health condition of Apple CEO Steve Jobs with some interesting new information.
Citing "people close to Mr. Jobs," Markoff says Jobs is, as I said yesterday, cancer-free, but that earlier in the year underwent an unspecified surgical procedure to address a problem that has been causing his weight loss. Markoff further reports that Jobs had been running a fever in the week leading up to his appearance at the Worldwide Developers Conference and had been taking a course of antibiotics. Additionally, Jobs has been dealing with "nutritional problems" in the wake of the cancer surgery.
This information would go to corroborate the "common bug" line that has been Apple's official line on the matter. It would also, to me, tend to lessen the tendency of speculators to assume the worst.
This issue has, over the years, really bothered people trying to figure out how to trade Apple stock based on non-public information related to his health. The Wall Street Journal relates a case from 2004 wherein hedge fund investors hired private investigator to tail Jobs' visits to doctors offices and hospitals. They apparently didn't do a very good job of it as he figured it out and became harder to track.
Posted by: Arik Hesseldahl on July 22
After the earnings call last night I talked with a source who is close to Apple and who who has in the past proven very well informed on the concerns of Apple senior management. This source told me with near-certainty that Jobs' cancer has not returned.
The concerns around his health have centered on two things: His thin appearance at the Worldwide Developer's Conference, and published reports in Fortune that in late 2003 after he first learned he had cancer, word of his condition wasn't disclosed to investors for nine months. Having consulted with two outside lawyers, the board of directors decided that it wasn't under any obligation to disclose anything.
Apple has for the most part remained silent about the health of its CEO. When questions were raised about his appearance at WWDC, spokeswoman Katie Cotton said he had been suffering from a "common bug," and I'm willing to take that at face value.
But having undergone surgery to remove an islet cell neuroendocrine tumor from his pancreas -- which is by all accounts a major surgical procedure and which required him about a month to recuperate -- even a "common bug" has the potential to affect Jobs' appearance. I think this, more than anything else, is the source of the concern.
Clearly there is a lot of concern about the health of Apple's CEO, mostly because he's seen, quite correctly, as a unique quantity. But, as I said on Fox Business News this morning (video above), I think these concerns are overblown, and are born out of a hypersensitivity to any perceived threat to his tenure. Remember during the height of the stock options mess, there were fears, again overblown, that Jobs might face criminal charges which might have in turn led to him losing his job. These fears were proved unrealistic, and even at the time the most cynical of observers thought it unlikely it would come to such a point. But the fears were there, and for awhile stock price suffered a little.
The same thing is happening here. Idle, speculative and uninformed talk is feeding fear uncertainty and doubt, that is not worth serious consideration. Even so, given what's publicly known about Jobs' medical history, questions about the condition of his health are certainly fair to ask, and the ones who should be doing the asking are Apple's outside directors, specifically its three-member compensation committee, to ask these questions on behalf of shareholders: William Campbell, Millard Drexler and former vice president Al Gore.
Since Jobs' ability to do his job would logically be affected if his health took a turn for the worse, and since his role is unique at Apple and when compared to other CEOs in his peer group, that makes his health a material issue about which investors have a legitimate right to be concerned over the long term. The compensation committee has the right and the duty to ask Jobs directly if there is any reason, be it related to his health or for that matter anything else, that might cause him to be unable to do his job in the foreseeable future. It's a reasonable and prudent question, and he has the duty to answer them honestly.
Once this conversation has taken place -- behind closed doors -- the board can and should say two things: First, that it has discussed health matters with the CEO; And second, presuming that this is the case, that it has no concerns about his ability to carry out his duties. That's it.
Such a statement can be issued in the course of routine SEC filings, say the next 10Q or 10K. It wouldn't violate the CEO's privacy in any way, and it would go a long way toward eliminating this lingering shadow of health-related doubt that keeps cropping up every time Steve gets on a stage.
In the event that Steve's answer is that there is a concern, it would fall to the board to weigh the situation and to determine what if anything should be disclosed, based on its potential for a material effect. If, for example, Jobs were to face being laid up for a month, that might reach the level of being material. A bad cold coupled with a loss of appetite, a few sick days, and the loss of a few pounds? Probably not material, and not worth getting worked up about.
Posted by: Arik Hesseldahl on July 22
It’s the day after Apple’s third quarter earnings, and as of 8:45 EDT this morning the stock’s futures are down $15, suggesting a nasty day when the regular session gets underway. The main concern will be the warning over gross margins in Apple’s fourth fiscal quarter ending in September and into fiscal 2009. And there are also persistent worries, which I think are overblown, about the health of CEO Steve Jobs.
Analyst reports are coming out fast and furious and I thought I’d summarize them as they cross my desk.
Gene Munster, Piper Jaffrary: “While the focus today will be anxiety over gross margin, we expect by the end of the September quarter the Street will likely look past margin guidance and focus on product transitions, along with the positive impact these products will have on revenue growth.” Munster maintained a Buy rating with a price target of $250.
David Bailey, Goldman Sachs: Bailey lowered his price target on Apple from $220 to $200, but maintained a Buy rating.
Shannon Cross, Soleil Cross Research: The guidance creates a buying opportunity. She maintains a Buy rating with a price target of $200.
Andy Hargreaves, Pacific Crest Securities: The company is in the early stages of two powerful product cycles. Yet concerns about Jobs’ health will continue to weigh on the stock. Even so he's bullish. "We believe Apple’s product diversity, its broad distribution and partner ecosystems, and its deep bench of management talent position it to continue its current momentum, even if concerns about Mr. Jobs’ health prove to be well-founded." He maintains an “outperform” rating with a price target of $235.
Tim Luke at Lehman Brothers: Gross margin guidance will prove conservative. Product expansion plans are on track. Price target lowered from $234 to $220. Rating stays at “overweight” given the weakness in the price.
Inrigd Ebeling, JMP Securities: Lower than expected guidance creates a good buying opportunity.
Yair Reiner, Oppenheimer & Co.: Q3 report was solid, but gross margin guidance for 2009 is disappointing. Expects sales of 4.9 million iPhones in Q4. Would buy on the weakness.
Scott Craig, Bank of America Securities: Management is being conservative about margin guidance. Price target lowered to $180 from $190. Maintaining a Buy Rating.
Posted by: Peter Burrows on July 21
As if the troubled world economy and consumer spending slowdown weren't enough of a headache, it seems Apple's rivals will now have a more aggressive Apple to contend with.
That was my take from the quarterly earnings call, during which chief financial officer Peter Oppenheimer said the company is targetting a gross margin of 30% for fiscal 2009. That's significantly down from the 35% range in recent quarters. The slow economy and some solidifying of electronic parts prices may be part of the explanation, but Oppenheimer left little doubt that there's a larger strategic change in the works. The goal: "not leaving an umbrella so big as to leave an opportunity for our competitors," said Oppenheimer.
It's a well-timed move, and a time-honored tactic by market leaders in tough times. If your competitors can't afford to match you on price, why not accept a lower margin for a time and load up on market share (or force them to incur losses)? Apple is already giving rival PC makers, MP3 player makers and most recently cell-phone makers fits with its basic formula: create pricey and unique new products stuffed with technological innovations and design niceties, and then maintain market share by leveraging economies of scale and through "value engineering" to lower their cost. That way, Apple can lower its prices while maintaining margins. Take the iPod. Back in 2001, wags said the name stood for "idiots price our devices" because of the $399 pricetag. Now, Apple sells the shuffle for $49. And yet Apple continues to gain share, according to Oppenheimer.
Continue reading "Oppenheimer's Prediction for Apple's Rivals? Pain"
Posted by: Arik Hesseldahl on July 21
On the earnings call Peter Oppenheimer just mentioned a "future product transition" which he couldn't discuss is having an impact on the gross margin expected in the current quarter. Wonder what this means? Could it have to do with the change in the notebooks that is expected? If it's affecting gross margins and average selling prices it may mean something new is coming in at a lower price point than before...hmmm.
