Jobs Health Still Concerns Investors Seeking Apple

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Jobs Health Still Concerns Investors Seeking Apple ‘Smart Guys’
By Connie Guglielmo

Jan. 6 (Bloomberg) -- Steve Jobs’s efforts to reassure Apple Inc.’s followers about his health left some investors with more questions than answers.

“I don’t know that the message they’ve given us gives me comfort that Steve will return to 100 percent healthy,” said Jim Grossman, an analyst at Appleton, Wisconsin-based Thrivent Asset Management, which oversees about $67 billion including 828,047 Apple shares as of September. “In the short term, it’s good news, but that doesn’t mean his health is no longer a concern.”

Jobs, who appeared increasingly thin at company events last year, issued an open letter yesterday that said his weight loss was a mystery until recently, when blood tests indicated that he has an unspecified hormone imbalance. Jobs said he will remain CEO as he undergoes what he described as a “relatively simple and straightforward” treatment that should enable him to regain weight by late spring.

Jobs said he would be the first to tell Apple’s board if he were no longer able to be CEO. He told shareholders in March that the board could choose his replacement from Apple’s management team, including Chief Operating Officer Timothy Cook. Apple has had a succession plan for several years, which is confidential, spokesman Steve Dowling said yesterday.

If Jobs were to leave Apple, the shares would likely lose 10 percent of their value, said Gene Munster, an analyst at Piper Jaffray & Co. in Minneapolis. That would erase about $8.4 billion of Apple’s market capitalization -- down from the 25 percent drop that Jobs’s departure would have caused last year, Munster said.

“Given all of the concern, investors have baked in part of the risk of Jobs leaving,” Munster said.

Apple, based in Cupertino, California, rose $3.83, or 4.2 percent, to $94.58 yesterday in Nasdaq Stock Market trading.

Macworld Decision

Jobs said he was prompted to talk about his health after his decision to skip the Macworld Expo in San Francisco today, where he has given the keynote address for the past 11 years. He said that prompted a “flurry of rumors about my health, with some even publishing stories of me on my deathbed.”

Jobs, dressed in his trademark black turtleneck sweater and blue jeans, has used Macworld to unveil new products, such as the iPhone in 2007. The company probably won’t introduce any major new types of products and instead will use Macworld to update its Mac desktops and software, David Bailey, a New York- based analyst with Goldman Sachs Group Inc., said last week in a note to clients.

“Steve’s contribution is that he’s the brilliant filter that chooses what products make it and which don’t,” Grossman said. “They just need to make us more comfortable that there are smart guys there. Less that there’s some wizard behind the curtain.”

Pancreatic Cancer

Jobs’s health has been a source of speculation among investors since 2004, when he disclosed that he had successful surgery for a form of pancreatic cancer. Called islet cell neuroendocrine tumor, it causes less than 3,000 cancers annually, according to the Lorenzen Cancer Foundation in Monterey, California. Patients with this form of the cancer may live 10 years or longer, said Simon Lo, director of the pancreas diseases program at Cedars-Sinai Medical Center in Los Angeles. Neuroendocrine tumor is less common than typical pancreatic cancer, which kills more than 30,000 people in the U.S. annually.

Since returning as Apple’s CEO in 1997, Jobs, who turns 54 in February, has transformed the once-struggling maker of Macintosh computers into a consumer-electronics powerhouse with the iPod media player and iPhone handset. His ability to pick up on technology trends and create “cool” gadgets that appeal to consumers won millions of buyers and helped Apple’s sales rise almost fourfold in the past five years to $32.5 billion in 2008.

Weight Loss

The type of pancreatic cancer Jobs had is often treated with extensive surgery, called a Whipple procedure, to rid the body of spreading tumor cells. The procedure can lead to a digestive condition known as dumping syndrome, which causes people to lose weight, Lo said.

Cook is one of the front-runners to be the next Apple CEO should Jobs step down, said Shaw Wu, an analyst at Kaufman Brothers in San Francisco. Cook has been considered Jobs’s second-in-command since he was promoted to that position in 2005. He filled in for Jobs when the CEO took a month’s leave to recuperate from his 2004 cancer surgery.

“He’s really a very key person in terms of bringing operational discipline, operational excellence to the company,” Wu said.

Operating Chief

After serving as operations chief at Compaq Computer Corp., International Business Machines Corp. and Intelligent Electronics Inc., a computer reseller, Cook was tapped to fix Apple’s inefficient manufacturing and logistics in 1998. At the time, Mac sales were on the decline as consumers bought cheaper computers from Dell Inc. and Hewlett-Packard Co.

Analysts identify Cook on conference calls from his slow Southern drawl. Born in Mobile, Alabama, Cook earned an engineering degree from Auburn University in his home state and a masters of business administration from Duke University in North Carolina. He sits on the board at Nike Inc., the world’s largest maker of athletic shoes.

Other options include Phil Schiller, senior vice president of worldwide product marketing, who is set to deliver the keynote address at Macworld today and has served with Jobs since 1997; Chief Financial Officer Peter Oppenheimer; and Ron Johnson, who leads Apple’s retail team.

Even if the company were to name a successor, it will still take investors time to envision Apple’s future without Jobs, said Marshall Goldsmith, author of “Succession: Are You Ready,” which will be published next month by Harvard Business Press. “If he had to be replaced tomorrow, the stock price would go down if God were chosen as his successor.”

To contact the reporter on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net