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Public statements issued by Apple (Nasdaq: AAPL) over the past year concerning the health of CEO Steve Jobs may have caught the attention of federal regulators -- the Securities Exchange Commission is rumored to have launched an investigation.
What the SEC wants to know is, did Apple mislead investors with its statements?
However, that is difficult to prove, and it's counterbalanced by solid company performance. Apple's sales of Macs and iPhones have reportedly exceeded expectations, resulting in analysts pegging its stock a good buy.
Also, reports that Apple is about to crack the China market with its iPhone at last may give its stock a further kick.
The Nine-Day Wonder
On Jan. 5, Apple published a letter from Jobs saying that his doctors had found he was suffering from a hormonal imbalance which that had caused him to lose weight over 2008.
On Jan. 14, Jobs e-mailed Apple employees saying his health-related issues "are more complex than I originally thought," naming Tim Cook responsible for the company's day-to-day operations and saying curiosity over his health was a distraction for him and the company. Jobs then took a leave of absence, returning to work in late June.
How Jobs' health deteriorated so rapidly over a period of nine days is the question to which the SEC is seeking answers.
If the SEC finds that Apple as failed to make a material disclosure required by law or has made a materially misleading disclosure, Apple could face a court injunction and fines ranging from US$75,000 per corporate violation of the law to $725,000 per violation.
Groping for an Answer
Determining whether or not Apple was really in violation of any law is not going to be easy.
"The principles regarding whether the law has been violated vary, depending on the particular nature of the violation alleged," Allan Horwich, a partner at legal firm Schiff Hardin and a senior lecturer at Northwestern Univeristy's School of Law, told MacNewsWorld.
Also, such cases may depend on whether or not the market was impacted by information previously kept under wraps. "Defendants in securities cases often argue that, if the market did not move when previously undisclosed information was disclosed, then the information was not material," Horwich said. However, not all courts accept that argument, he pointed out.
Because the rumor mill began grinding when Jobs was observed to be losing weight in 2008, the public did have some information, although it was incomplete and speculative, Horwich argued.
"The particular pattern of disclosure here makes it difficult to use market impact as a proxy for the materiality determination," he added.
Horwich has written a paper on CEO transparency discussing when a corporation is obligated to disclose that a corporate luminary is seriously ill.
How much the market might react to the SEC's eventual findings one way or the other remains to be seen. Still, the probe could mean that Jobs and Apple will in the future be more forthcoming about matters that could impact the company.
Laughing All the Way to the Bank
The successful launch of the iPhone 3GS and strong demand for the new 13-inch MacBook Pro will send Apple stocks up over the next three months, said Gene Munster, senior researcher at market analyst firm Piper Jaffray, according to media reports.
There has been a seven- to 10-day lag in fulfilling orders for the 13-inch MacBook Pro since Apple cut its price to $1,199, according to Munster. This is the longest lag Piper Jaffray has seen.
That price cut was made June 8.
Sales of the iPhone 3GS have also exceeded expectations at both Apple and AT&T (NYSE: T), the analyst said.
Piper Jaffray has a price target of $180 per share for Apple over the next 12 months.
The current month, however, has not been a stellar one for Apple shares, with the closing price of $142.83 on July 1 being the high point of the month so far.
On Tuesday, Apple stocks climbed back a bit to close at $142.40, up six cents from Monday's close.
Apple will issue its third-quarter earnings report on July 21, so we'll see what happens then.
We can also look forward to its September fiscal year-end report. Q3 estimates could well be conservative -- Apple has traditionally been very conservative in its guidance and targets.
Keeping the iPhone Ahead of the Curve
Several patent filings from Apple were published earlier this month, and they could work to keep the iPhone well ahead of its rivals -- if they evolve into actual features.
They include a new app that can identify objects around the iPhone user. So if a user takes a photograph of a building, for example, the iPhone could provide detailed information about the building.
This would use either a camera, an infrared image capture device, or use mobile RFID (radio-frequency identification) reader to detect items in the environment, then search remote databases to identify them.
RFID uses a tag applied to or incorporated into a person, animal or product that is tracked by radio waves. Mobile RFID provides information on objects equipped with an RFID tag over a telecommunication network. The reader is installed in a mobile device such as a mobile phone.
This might pay off handsomely for Apple, said Julien Blin, CEO and principal analyst at RBB Research.
"Apple could tie this in with mobile advertising, mobile commerce and banking," he told MacNewsWorld. "Combining location-based service capability with mobile advertising or commerce or banking will become a must-have in the coming years."
Slow Boat to China
There are signs that the years Apple has spent trying to get the iPhone's foot into China's door may finally end in success.
Denver, Colo.-based Wedge Partners, which has offices in China, has reportedly stated that China received an application from Apple last week seeking a network access license to sell the iPhone in the country.
The iPhone is already a hot item in China's gray market. With an official carrier partner in the country, Apple could further capitalize on opportunities in the region.
The application is for an iPhone that does not include WiFi capabilities, according to reports. This apparently constitutes a concession by Apple to China's Ministry of Industry and Information Technology, which insisted the device not have WiFi access.
Once the license is approved, talks between Apple and China Unicom will likely proceed. Talks with China Mobile, China's -- and the world's -- largest carrier, with more than 477 million subscribers, reportedly fell through months ago.
Still, China Unicom is small only by Chinese standards -- it has about 138 million subscribers -- so that's pretty good going. If Apple can agree on terms with a Chinese carrier, iPhone sales will gain a strong foothold in Asia.
