Academic journal article Atlantic Economic Journal

Do Investors Care If Steve Jobs Is Healthy?

Academic journal article Atlantic Economic Journal

Do Investors Care If Steve Jobs Is Healthy?

Article excerpt

"Great things in business are not done by one person; they are done by a team of people." Steve Jobs (2O02)

"Apple's stock has fluctuated on concerns about Mr. Jobs" health for more than a year. "Joseph Menn and Richard Waters (2009)

Introduction

Steve Jobs of Apple, Inc. is one of the best known CEOs in the world and was one of the founders of Apple, Inc. In May 1985 he was dismissed as the head of the Macintosh Division. In September 1985, he resigned his position as Chairman of the Board to pursue other interests. This turned out to be a new company, NeXT Computer. In 1986, he purchased a majority interest in Pixar, formerly known as the Computer Graphics Division of Lucasfilm, Ltd. Disney purchased Pixar for $7.4 billion in Disney stock in 2006. The sale resulted in Jobs becoming the largest shareholder in Disney with 7% of Disney's stock. In 1996, Apple purchased NeXT Computer and Jobs returned to Apple. In July 1997, he took over as de facto CEO, was officially named CEO on an interim basis in September 1997, and the "interim" label was officially dropped from his title in 2000 (Wikipedia 2010).

From late July 1997 to early 2010, Apple's market capitalization increased from $2.4 billion to $210.1 billion. Many attribute this growth to Jobs. Indeed, some stock analysts suggest that Apple "is possibly more dependent on its CEO than any other major company" (Bicheno 2009), and even the Sage of Omaha, Warren Buffett, recently observed that "Certainly Steve Jobs is important to Apple." (Buffett 2009).

It is alleged that Apple's share price flutters up and down in response to reports about the health of the 54 year-old Jobs (Menn and Waters 2009). In one instance, an analyst predicted a one to five percent climb in Apple's share price if Steve Jobs even made an appearance at a June 2009 Apple software developers' conference, while another predicted as much as a ten percent decline if he did not (Baldwin 2009). A prominent Apple-oriented blog argued in early 2009 that "concerns over Jobs' health have triggered disruptions in the company's stock price" (Macnn.com 2009).

Charles R. Wolf, an analyst at Needham & Company, estimated that "Apple's valuation might fall by a third if Jobs were to depart" (Guglielmo 2007). Bary (2007), writing on Barron's web site, estimated Job's value to Apple at approximately 20% of its market capitalization, or $16 billion dollars in March 2007, and in March 2010 with Apple's market capitalization over $200 billion, upped his estimate to $25 billion (Bary 2010).

In late July 2008, Wolf offered the view that "Apple is Steve Jobs and Steve Jobs is Apple" (Nocera 2008). Wolf also told Nocera that Apple's share price "... would drop 25% or more if he were to leave the company unexpectedly." In July 2008, this implied a value for Mr. Jobs of about $32 billion. The Apple Insider Blog (2010) estimated Jobs' value to Apple to range between $20 and $25 million.

Even so, not all observers agree about Jobs. Piper Jaffray stock analyst Gene Munster (2009) opined that Tim Cook, Apple's Chief Operating Officer, was more valuable to the company than Mr. Jobs. (1) Others (Fox 2009; Marshall 2009) have noted that Apple has maintained its profitability and efficiency of operation whether or not Mr. Jobs has been in the driver's seat. They concede that Mr. Jobs' health is a material fact concerning Apple about which investors should have accurate information, but contend that his health really does not make much difference either in Apple's operations, or in its share price performance. They suggest that while Apple's legendary penchant for non-disclosure and secrecy with respect to its activities concerning Mr. Jobs' health may be inadvisable, or perhaps illegal, it has not really had a strong impact on Apple's share price.

The impact of Steve Jobs' health on Apple's share price devolves ultimately to an empirical question. …

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