Apple's Balancing Act: 3G iPhone vs. Jobs' Health - Barron's

What a week it was for the world's foremost CE gadgets maker. Apple's (AAPL) guru, CEO Steve Jobs, unveiled its second generation iPhone at the company's annual Worldwide Developers Conference in San Francisco and it pretty much met or surpassed all expectations. Consumers can forget about all those complaints about the slowness of i-surfing the web via the 2.5G EDGE network when a faster WiFi network wasn't available; iPhone 2.0 comes locked and loaded for much faster 3G network access.

Another thing that has the Apple faithful riled up this time around is the 2.0's price -- or lack thereof. Despite the fact Apple's latest iPhone has features a-plenty that the pre-3G version lacks, such as built in GPS, a new and aggressive pricing strategy will run consumers just $199 for 8 gigs of storage -- half the price of the model it replaces. Instead of retailing the phone at full price and taking a monthly cut from exclusive carrier AT&T (T), Apple will forgo its cut and AT&T will subsidize the phone's price in exchange for a two-year service contract. The reduced pricing means barring unforeseen disaster, Apple should blow past the 10 million phone sales estimate it set for itself in FY2008.

Despite the bounce in share price the 3G's coming out party should have in all likelihood created, Apple shares spent the week selling off (-7.5%). The reason, according to Barron's' Eric Savitz, is simple: Steve Jobs-related health concerns. Following last week's 'Jobs-note', both the blog-o-sphere and mainstream media were filled with reports of a gaunt-looking Jobs, setting off a round of rumors that Apple's number one executive had experienced a relapse of the rare form of pancreatic cancer he suffered from four years back.

Apple's press team responded to the rumors by saying Jobs merely had a "common bug" but to Savitz, the stock's sharp reaction to what amounted to nothing more than hearsay and speculation (at least for the time being) alluded to a greater truth - Apple investors have serious concerns about the company's future prospects in a post-Jobs universe. According to Savitz, "More than any other company, Apple is viewed as a creation of its CEO; it's a cult of personality." Without Jobs in the Chairman's seat, Apple's share price could suffer a serious setback - 3G iPhone or not.

==================================================

TechCrunch's Michael Arrington ponders what will happen to the iPhone's rivals.

Author Eric Savitz discusses Apple's refusal to seriously engage in Jobs-related health speculation.

FP Trading Desk notes analysts are thoroughly impressed with the surprise change in Apple's carrier revenue sharing agreement, which should drive an additional $2 billion in free cash flow to the company in 2009.

Comments

[mrtaxx]

Apple commented to -rumors- of Steve Jobs looking thin by saying Apple's CEO Jobs had a common bug, no further comment from Apple is needed. Yet Baron's and other news writers like seeking-alpha must be short Apples stock or working with hedge funds that are short in my opinion. There are no FACTS indicating Steve Jobs has a serious recurrance with cancer and news writters keep on writing about -rumors-, just -rumors- nothing more then rumors, NO FACTS, just -rumors-. How dispicable is that, how sad? How desperate are these news writers to write about Steve Jobs health which they know nothing about, these people are low lifes in my opinion.

[taojones]

in fact there was a post that post operative weight loss is a symptom of the procedure Jobs had done and the prognosis is skinny but healthy

[JonathanLiss, SAEditor]

mrtaxx,

Rest assured no one at Seeking Alpha is short any of the companies we write about and if we were, we would fully and openly disclose such an important fact. We summarize Barron's stories not because we agree or disagree with them but because they move the market. So don't see this piece as agreeing with Barron's (or disagreeing with it) - that is not its purpose.

One (small) defense of the Jobs rumor mill (and your critique is certainly justified) - last time Steve was sick Apple waited until after the fact to inform investors of his condition. As such, there are those who feel it is too late to wait until Apple releases an official statement to sell their shares.

Here's wishing Mr. Jobs many years of good health.

Best,
Jonathan Liss

[taojones]

says Philip Elmer-Dewitt at Fortune. Philip says that Jobs likely had the "Whipple" procedure, which often causes significant and permanent weight loss:

Along with the digestive problems, patients often lose 5% to 10% of their body weight after the procedure. Weight stabilizes within the first year or two for the vast majority of patients, says Dr. Dilip Parekh, chief of tumor and endocrine surgery at the University of Southern California, who has performed more than 100 Whipple procedures.

[Trader T]

This article's shortcoming is that, for whatever reasons, the author chose not to disclose the previous health rumor spin articles that said almost the exact same thing written by Barrons and Fortune in 2006. This is just another example of market manipulation - and should have at least been discussed in an objective article. Shoddy work Mr. Liss,

[User 211127]

Still bringing this up a week later? Still have to milk it for hits eh?

[superhappyfamily]

you state in a reply to mr taxx that apple did not disclose steve job's health issues in 2004. exactly. they said NOTHING. there is a HUGE difference between saying nothing and LYING. in 2004 apple did NOT say steve jobs just has a "bug"... they said he is being treated for cancer.
don't you think that if steve jobs has cancer AND a "bug" that apple would say so? obviously when asked about jobs' health apple knew that the media wanted to know about the cancer. do i wish that apple was clearer for the feeble-minded among us? yes. but the question was asked and answered.

[YASHIVA]

AS ADMIRERS OF STEVE, WE WISH HIM WELL. BUT, APPLE HAS AN OBLIGATION TO SOOTH ITS SHAREHOLDERS' CONCERNS.

APPLE AND ITS BOARD AND OFFICERS NEED THE LOYALTY OF THE SHAREHOLDERS. PLEASE REMEMBER THIS, MR. LISS.

[jonesy]

Agree with superfamilyhappy. No reporters asked about Jobs health the last time, and when the time came for Jobs to make a public appearance (MacWorld Paris), Apple made a direct and truthful announcement.

The implication of Barrons (and your article in repeating it without questioning it) is that Apple is lying in its response. Reporter asked specifically about cancer, Apple answered that it's a bug. Continuing to question the answer shows that Barrons doesn't believe it.

[Brandon]

Obviously further comment IS needed when the stock gets hammered by these rumors. The problem with things like the rumor about Jobs' health is the stock will drop 15 points because of it and gain a dollar when it's finally refuted. I wasn't entirely convinced by the 'common bug' answer. I think when Apple's stock is clearly getting nailed because of this, they should do a little better pr job.

[zoom]

...and you are using eric as a reference? just because HE doesn't believe it, just because HE thinks the sell off stock indicates that Apple is not fully disclosing... are you kidding? maybe a real job in journalism might do you some good, or a writing class or even a class in investigating facts, or having your own opinion.

As for you weak reply to another commment that you guys don't short stock, ahhh ha ha ha please, you must really think the readers and shareholders of Apple are stupid.

[Brewer]

I heard a rumor today that Jobs is already doing push-ups in preparation for MacWorld Expo 09. He's going to do a Jack Pallance there for everyone. Just watch the stock go up when Jobs flexes his new biceps!

Seriously, Apple and Jobs (and perhaps the shareholders) should look into a libel lawsuit over the Barron's article.

[zoltankovacs]

It allways surprises me, how shortsighted analysts and journalist value AAPL. Maybe it's healthy for the stock, it gets the weak hands wiped out.

[JW, PhD]

Well, I see that seekingalpha is seeking new lows along the lines of the tabloid-style "reporting" of Eric "AAPL Bear" Savitz and Barron's. Not the kind of journalism you want to be emulating, guys. You'll be grouped with the National Enquirer if you keep writing this kind of shoddy article.

[User 211220]

For those who think they have a right to know about Steve's health because he is a valuable asset, You are wrong! He may be valuable, but he is not an asset that is owned by the company. He can resign tomorrow and go fishing, if he likes. When Steve leaves Apple is nobody's business but his own.

[Apple Heavy]

When I purchased AAPL stock, I did so on the basis on the growth in Mac market share, the commanding market share in music players, an outstanding retail operation and supply chain, and strong entry into the Smartphone market.
One of the traits Mr. Jobs should be given credit for is his eye for talent, and while there may not appear to be an obvious successor to him, I suspect this is more a question of his deputies preference to defer to Steve, rather than the incapability of taking his place.
It is quite possible the stock would take a short term hit if he were to step down for any reason, but we have seen the stock take greater hits for other manufactured reasons, such as the drop earlier this year from $200 to $120. So, as always, the performance of the stock will return to reflect the performance and strength of the company.

[Partners inGrime]

He's just trying to be as thin as the new iPhone.

[vassar]

He would have been dead a long time ago if his pancreatic cancer were still around.

[ktwalrus]

The price of the iPhone has increased! Reporters are focusing on the $199 up front number and forgetting that AT&T has raised the monthly subscription $10 to compensate. Over the required 24 months, this will cost you $40 more than those who bought the first iPhone generation.

[Mark inScottsdale]

Many years ago, I bought Apple II's and later IIe's because they were an amazing leap forward. I bought Apple stock at their IPO for the same reason. I also have switched several companies I owned or controlled away from Windows and into Apple and never looked back. Why? Because it's a superior concept, and a superior product. More over, it's usable and an employee can be doing productive work on a Mac within minutes of it being set up. Try that with a first time Windows (or Vista) user. Try supporting a computer installed base with 300 plus computers, and printers, scanners, networking, servers, etc., with ONE "computer persons" part time! It is only possible with Apple Computers.

I have met Steve Jobs and "The Woz" many times over the years. Those early shareholder's meetings were definitely "family affairs" and talking to both founders was commonplace. We've all grown up and grown middled aged together. The goal of any business founder is to build something that is bigger than the sum of it's parts. Apple clearly meets that test. Mr. Jobs has built something that will continue on well after he is no longer on this veil of tears. The Visions that he has had to date have been invaluable. The ones that may come in the future and become "Apple" branded products may well come from other people now at Apple and who are now being heard for the first time. Steve has built a cohesiveness and uniformity into Apple products that cannot be denied. From the packaging, to the set-up, to the way the buttons connect on my new Aluminum Keyboard. It's Apple all the way. In his youth Steve Jobs had the visions that became Apple. Now his chief strength is hiring (stealing when necessary) the best talent and bringing them into the Apple family and then keeping them their with professional challenges and wealth beyond their wildest dreams. Do you know how many millionaires are made by Apple Employee Stock Purchase Plan every year? They don't release the exact numbers but I've heard it said that the number is in the thousands per year. That isn't going to go away if and when SJ leaves Apple for any reason. The talent he's found, nurtured, taught "the Apple Way" to and then locked in with Platinum handcuffs - they're not leaving. The cage is far too well stocked. Apple is not a company you want to have on your Resume' as a stop over. Apple is the destination. The one place you want to remain for the rest of your career if humanly possible. How many companies inspire that kind of loyalty from their employees and their stock holders? How many inspire any loyalty at all from the public? Apple is unique. Apple Forever!

[mollytjm]

mark in scottsdale...thank you so much for your wonderful comments. i agree completely. when people make these comments about apple after Jobs, i always say the same thing...you know, he's not the only smart person there!! it's not like they won't get any more ideas! i started with an Apple IIe and have a new macbook now. it just gets better! let's here then say that about Vista:)

[jonreagan]

Back in a Seeking Alpha article last December (12/17/2007) SA writer Alan Brochstien penned an article advising investors to "get out of AAPL before the crowd", and in the article, brought up Steve Jobs' previous illness. I thought it was creepy then, and it's creepy now. Subsequent to this so-called "article" the stock continued an upward rise from the 170's to 202 in January, before correcting. But above all, that was back in December 2007, and this is June of 2008....and the man is still kicking ass.

So it's not surprising that the same tired old garbage is being trotted out now, in advance of a major product launch....it's nothing more than money-grubbers trying to create a buying opportunity. Apple is a volatile stock; notice these cretins never peddle their lies when the stock is in a trough. They get trotted out four weeks before the launch of the 3G iphone.

It's a sad commentary on our overweight culture that someone in shape and fit is ridiculed as "skinny", and becomes vulnerable to rumors of frail health. About two weeks before Tim Russert's tragic passing, I commented to a friend that Russert was looking way too heavy, which is worrisome in a high-pressure position like his. I was not surprised when he was stricken last Friday.

Personal anecdotes may be of limited use, but I recently purchased a high-end pair of New Balance running shoes. In speaking with a rep at the company, he mentioned that this particular pair was Steve Jobs' favorite......in spite of the superb quality, he told me that Jobs still burned through two pairs in a year! No wonder he's so slender. The guy is fit, driven, a total stud, and will be with us for a long time, I suspect. This all makes you realize how ludicrous the rumors are. Apple is right to not to engage these stories beyond what they said last week; otherwise, it's like feeding the beast. ANY responses will get nitpicked and analyzed six ways to Sunday. And before long, all these shorts will be psychoanalyzing Jobs' bathroom habits....