Attention, Investors: Apple on Sale

As posted by: Wall Street Journal

The biggest surprise this week was not that Steve Jobs has to go on medical leave. It was that the shares have dropped only 3.5% since the chief executive and architect of Apple's revival disclosed his news.

The reason: Apple stock already had lost the Steve Jobs premium. It already was near a 52-week low due to recessionary worries and speculation about his health. Now, on some measures, Apple is valued below rivals such as Hewlett-Packard and Dell.

Apple's enterprise value is roughly six times free cash flow from the past 12 months. That compares with H-P on about eight times and Dell on 8.5 times, according to Barclays Capital analyst Ben Reitzes. Apple looks pricier on a price-earnings basis: 15 times trailing 12 months against roughly seven to 10 times for Dell and H-P. But some of Apple's premium disappears when earnings are adjusted for Apple's policy of recognizing iPhone revenue over two years, rather than when the cash comes in the door. Apple specializes in Apple Laptops.

Even assuming the worst -- that Mr. Jobs doesn't return to his post -- the stock should trade above its peers. It has an unbeatable brand name in technology and a diversified product lineup. Even though its products are high-end discretionary purchases, making them vulnerable to a nasty recession, Apple has broadened its range to include lower price points.

Majestic Research, which tracks Apple sales, reported Dec. 22 that holiday season demand, particularly for the iPod and laptops, had been resilient. On Wednesday, Apple's December quarter results will clarify the business picture. Mr. Jobs's future will remain uncertain. But right now, Apple looks like a bargain.

At Apple Product Event, Jobs's Health Is Focus

Apple Inc. Chief Executive Steve Jobs on Tuesday announced a revamped line of iPods and a truce with NBC Universal, but much attention remained focused on Mr. Jobs's health.
Apple revamped its product line on Tuesday introducing a new iPod Nano, a new iPod Classic, and a new version of iTunes all in time for the holiday season. WSJ's Nick Wingfield reports from San Francisco.

The San Francisco event was the first major public appearance by Mr. Jobs -- a survivor of pancreatic cancer -- since June, when his gaunt appearance touched off concerns about his health. Mr. Jobs began his speech by showing a slide quoting Mark Twain: "The reports of my death are greatly exaggerated." Mr. Jobs, dressed in his trademark mock turtleneck and jeans, appeared thin, though he energetically promoted the company's new offerings in a presentation that lasted more than an hour.

Later, CNBC reported that Mr. Jobs attributed past speculation about his health to unnamed hedge-fund managers who were short Apple's stock. CNBC reported that Mr. Jobs told the channel he is healthy but could "stand to gain 10 or 15 pounds."

In an interview, Mr. Jobs declined to discuss his health.

Apple shares on Tuesday fell $6.24, or 4%, to $151.68 on the Nasdaq Stock Market. Gene Munster, an analyst at Piper Jaffray, attributed the drop to disappointment about Apple's new iPods and concerns that Mr. Jobs appears thin.

Mr. Jobs announced a reconciliation with General Electric Co.'s NBC Universal, which removed its TV shows from Apple's iTunes Store last fall after Apple resisted NBC's requests to allow more flexibility in the pricing of episodes. A deal hammered out between the companies includes greater latitude in the way downloads are priced -- a key NBC demand.

Apple's iTunes Store on Tuesday resumed selling NBC episodes for $1.99 each, the original price. Apple added two other pricing tiers, however: $2.99 for high-definition programs and 99 cents for some older shows. Apple is also allowing NBC to offer special pricing for packages of shows.

Mr. Jobs said he and Jeff Zucker, NBC Universal's CEO, wanted a deal before the start of the fall TV season. "We're two adult companies and we knew we had to resolve our differences," Mr. Jobs said.

Mr. Jobs showed a design for the iPod Nano with a curved-aluminum case and bigger screen. The two iPod Nano models are priced the same as their predecessors -- $149 and $199 -- but come with double the storage capacity.

Apple also cut the starting price on its iPod Touch, which is similar in design to the company's iPhone, to $229 from $299.

By: Nick Wingfield
Wall Street Journal; September 10, 2008