KEY POINTS:
Apple may find its most valuable asset is something it can't protect through patents or secrecy: chief executive officer Steve Jobs.
If Jobs were to leave, shares in the California-based company might drop 25 per cent or more, analysts say. That would erase about US$20 billion in Apple's market value.
"It would be a disaster," said Gene Munster, an analyst with Piper Jaffray & Cos in Minneapolis, who's had an "outperform" rating on Apple's shares since June 2004.
The computer maker's dependence on its CEO was illustrated in the last week of December, when the stock dropped as much as 5.8 per cent after The Recorder, a San Francisco-based legal publication, reported Apple had faked documents to backdate stock options.
On December 29, the company said its own investigation, led by Apple director and former US Vice President Al Gore, cleared Jobs of any wrongdoing. That eased concern Jobs might have to step down and sent the shares up 4.9 per cent.
The Gore report may not be enough to exonerate Jobs in the eyes of US regulators at the Securities and Exchange Commission and Department of Justice, said James Post, a professor of management at Boston University. Apple last month took a US$84 million charge to account for the backdated options.
Apple has said it provided the results of its investigation to the SEC and the US Attorney in San Francisco. Federal investigators are probing Apple's backdating of stock options, a person familiar with the matter has said.
The probe may have been dealt a setback last month when Kevin Ryan, the US Attorney in San Francisco who helped spark a nationwide investigation of stock options, announced he would step down from his post with two years left in his term.
Jobs may be more closely linked to Apple's prospects than any CEO in the Fortune 500, said Charlie Wolf, an analyst at Needham & Co in New York. Apple's valuation might fall as much as a third if Jobs were to depart, he said.
"He has one of the keenest eyes in the world when it comes to pinning down not only the design, but the features that will attract the most people," said Wolf, one of 24 analysts tracked by Bloomberg who rate Apple's shares "buy". "He's the creative spark."
Investor anxiety over the options probe comes as Apple last month reported it had earned US$7.12 billion in quarterly revenue, trouncing analysts' expectations of US$6.44 billion. Earnings per share were US$1.14, much better than the US78c expected by analysts.
Over the past five years, Jobs, 51, has cemented his image as technology's leading fashionista with the iPod, a sleek, easy-to-use digital music player that steamrolled over earlier rivals to become the best-selling device in the US.
With celebrities such as U2 lead singer Bono, hip-hop artist Kanye West and singer John Mayer joining him on stage, Jobs, dressed in his trademark black turtleneck and jeans, has transformed staid product introductions into high-profile media events. He has unveiled smaller, high-capacity designs that have driven sales from current and new iPod owners, said Munster.
"Apple's like a technology fashion house," said Jane Snorek, a portfolio manager at FAF Advisors in Milwaukee, which oversees US$55 billion in assets including Apple shares. "They really have their finger on consumer design."
Jobs has played this role since founding Apple at the age of 21 with Steve Wozniak, acting as the pitchman to Wozniak's geek. Together they helped popularise the personal computer with the Apple II. In 1984, Jobs turned Apple into a household name with the Macintosh, offering a PC with a simple-to-use, point-and-click interface unlike anything consumers had seen before.
"He has a sense for how people perceive things, what strikes people as having value and not," said Wozniak in a January interview. "For Steve, it's all about not accepting the adequate." Jobs knows how to build products that make people say "Wow!" said Wozniak.
The announcement last month of the iPhone, which combines the music and video features of the iPod with a cellphone, was vintage Jobs.
"We have reinvented the phone," Jobs proclaimed after receiving standing ovations from Apple admirers at the annual Macworld Expo conference in San Francisco.
The company aimed to sell 10 million iPhones in 2008, capturing 1 per cent of the global market, Jobs said. Investors who had anticipated the device said they were surprised with its ease of use and styling.
Apple's shares were at US$83.94 on Monday, down from January's US$97.10 record high. They rose 18 per cent last year.
Apple's stock has surged from less than US$10 to almost US$100 since Jobs returned to the company in 1997. He had been ousted in 1985 by John Sculley, the Pepsi-Cola CEO he had recruited to help transform the start-up into a mature organisation.
In addition to moving Apple into consumer electronics, Jobs has revived the PC business, with innovative designs such as the iMac and faster machines built with chips from Intel Corp.
The question of who might succeed Jobs remains open, though he's surrounded by a cadre of jeans-attired executives who mimic his use of the words "cool," "awesome" and "revolutionary" to describe Apple's technology.
"Steve has spoken about how great products come only if one mind is in control of it, making decisions," said Wozniak.
"But I think even if Steve wasn't here, there are talented and good people there who have gotten to know how Steve thinks and what he's going to like and not like."
They include Timothy Cook, 46, who led Apple while Jobs battled pancreatic cancer in August 2004 and who was named chief operating officer in 2005. Analysts, including Wolf, also single out Ronald Johnson, 48, who has led Apple's retail store expansion over the past five years.
"The biggest risk to Apple is not competition or markets or products," Piper Jaffray's Munster said. "It's probably the reality that at some point Steve Jobs is going to leave. That's just the wild card that investors have to deal with."
- BLOOMBERG
