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What's next for Apple?
Steve Jobs's cancer surgery has Wall Street wondering about the company's future.
August 2, 2004: 5:49 PM EDT
By Paul R. La Monica, CNN/Money senior writer

NEW YORK (CNN/Money) - Apple investors have already been through a period without CEO Steve Jobs at the helm and that didn't turn out too well.

So the news of Jobs' cancer surgery over the weekend did not sit well with Wall Street. Shares of Apple Computer (AAPL: Research, Estimates) dipped more than 2 percent Monday morning.

Jobs wrote in an e-mail to employees that he would be out for a month to recuperate from surgery for a rare form of pancreatic cancer. Although he said the surgery was successful and that he would not need to undergo chemotherapy or radiation treatments, analysts still brought back memories of when Jobs left the company for an extended period of time.

Jobs, one of Apple's founders, quit after a spat with CEO John Sculley in 1985 and then founded computing company NeXT. At first, Apple continued to do well but by the early 90s, Apple faced several major problems.

The company's Newton (a personal digital assistant before PDAs were in fashion) flopped. That failure led to the ouster of Sculley in 1993. Successors Michael Spindler and Gilbert Amelio were unable to stem mounting losses at Apple. By the mid-1990's many on Wall Street had written the company off.

But Jobs returned to Apple as a consultant when Apple bought NeXT in December 1996. After Amelio resigned in 1997, Jobs essentially served as interim CEO until he permanently took over the job in January 2000.

Apple's stock endured some rocky times without Steve Jobs while the Nasdaq surged...  
Apple's stock endured some rocky times without Steve Jobs while the Nasdaq surged...

And Jobs is given much of the credit for the success of Apple's blockbuster iPod digital music device, as well as other products that have been introduced since he rejoined the firm, such as the iMac computer.

"Steve Jobs has been the hallmark of Apple's turnaround," said Megan Graham-Hackett, an equity analyst with Standard & Poor's. "It would be a blow to the company if he were not able to be as participatory as he has been in the past."

The Steve Jobs premium

Apple has been one of the few large tech stocks to flourish in what has been a rough year for the sector. Apple shares are up nearly 50 percent this year, following a 50 percent jump in 2003.

...but since Jobs' return, Apple has been a tech superstar in a  rough period for the overall sector.  
...but since Jobs' return, Apple has been a tech superstar in a rough period for the overall sector.

That's led some to question the stock's valuation, however. Apple now trades at 36 times earnings estimates for fiscal 2005, which ends in September of that year. So the slightest bit of uncertainty about Jobs' status could have a big effect on the stock.

"When you take a stock that's riding on vapors, a lot of promise and hope that the next big thing will be around the corner, something like this does make you think," said Rod Bare, an equity analyst with Morningstar.

Jobs said that Tim Cook, Apple's executive vice president of worldwide sales and operations, would run the company on a day-to-day basis while he recuperates. Cook, who has been with Apple since 1998, has also been an executive with PC maker Compaq (which has since merged with Hewlett-Packard) and IBM.

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Steve Lidberg, an analyst with Pacific Crest Securities, said investors should not worry about the company's performance under Cook. "In terms of operations and sales execution, Apple has seen good progress over the past 18 to 24 months. That's very encouraging," he said.

Still, Apple is not trading on past performance, but on continued expectations of more hot products down the road. There is currently a lot of speculation about Apple eventually releasing a video version of the iPod, for example.

Jobs has done a stellar job of making Apple cool and buzz-worthy again and it is uncertain whether Cook would be able to have that same type of resonance with investors. And that's going to be key as the iPod starts to face more competition from the likes of Sony, Dell and Samsung in the portable music device market, not to mention an eventual threat from its old foe Microsoft.

"Cook has a very good business mind and understands the design expertise," said Graham-Hackett. "But he doesn't have the star quality and the visionary talents associated with Steve Jobs."

Of course, it seems premature to speculate about a successor to Jobs. Or is it? "We have a talented and experienced senior management team," said an Apple spokeswoman. "Our board of directors has a formal succession plan in place but the details of that are not public."

But Bare said that Apple investors should always be prepared for life without Jobs -- and not just for health reasons.

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For one, Jobs is also the CEO and chairman of the computer animated film company Pixar (PIXR: Research, Estimates). Plus, Jobs did leave Apple before to start a new company. What's to stop him from doing so again?

"Apple's board must always have in the back of its mind, 'Will Steve Jobs get bored with this and do something else or will Pixar require more of his time?'" said Bare. "Jobs is a guy who could call it a day on short notice."

And Apple is clearly one of the handful of companies where the fortunes are seen to be intricately tied to the person in charge. So even if business proceeded as usual with Apple, Wall Street probably wouldn't see it that way, at least in the short term.

"Apple does rely on a cult of personality and the stock trades on some of that," said Bare.

Analysts quoted in this story do not own shares of Apple and their firms have no investment banking ties to the company.  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.