Why Apple investors should worry about Jobs' job

By Robert Walberg

The keynote address that Steve Jobs delivered Monday at Apple Computer’s (AAPL, news, msgs) annual Worldwide Developer Conference was a dud. He didn’t offer any surprises or unveil anything new related to the blockbuster iPod. Compared to last year’s big Intel (INTC, news, msgs) announcement, the speech left investors wanting.

Investors' disappointment showed in Apple's shares, which slid 1.6% to $67.21 Monday. The reaction also underscored how important Jobs is to the company.

His lackluster performance at the conference may indicate that Apple’s ongoing investigation into how it grants stock options is taking a toll. Late last week, the company revealed that it will probably need to restate past financial results to correct accounting irregularities related to the backdating of options. It also noted that the practice may have persisted longer than previously thought.

What did Jobs know?

If that weren’t bad enough, a story in the Wall Street Journal suggested that the options-backdating scandal -- which already has tarred over 80 companies -- runs all the way to the top at Apple. The company hasn’t disclosed which grants its independent investigation is reviewing. Yet the Journal noted that regulatory filings show that numerous options grants were made to top executives, including Jobs, between 1997 and 2001 -- just before the stock rallied.

For now, the general opinion on both Wall Street and Main Street is that the options-granting issue won’t have a big impact on Apple’s past results. It also takes little away from the impressive array of products that transformed Apple from a niche computer maker into a consumer electronics juggernaut. Consequently, according to prevailing opinion, the stock's recent slide in response to the developing story provides another good buying opportunity.

Maybe. But what’s missing from the above scenario is the growing chance that the scandal will force the company to call for Jobs’ resignation.

Sure, the probability of that is pretty low -- most on the Street put it no higher than 10% -- since we don’t have enough information about what Jobs knew and when he knew it. However, Jobs’ reputation as a hands-on manager at least suggests that he was involved in the decision-making process regarding the option grants.

Why Jobs matters

There’s good reason for caution. You would be hard pressed to find another CEO more closely linked with his/her company’s enormous success. It wasn’t until Jobs returned to the helm of Apple in late 1996 that the company started its transformation, and the stock began its amazing ascent (it is up roughly 1,000% since his return).

The company needs some good news, which is why investors and analysts alike were hoping for a big story from the developers’ conference. And there were a few updates worthy of note, most notably the launch of the Mac Pro line of desktop computers. The units, priced at $2,499, include two Intel processors, thereby completing the company’s transition to Intel chips within a mere 210 days.

Jobs also discussed at length the upcoming update to the Mac operating system, dubbed Leopard. Again, a few nice changes such as enhancements to the email program and a program that backs up and finds deleted files, but nothing here that was unexpected or that juiced the audience.

Apple fans brace for more

Those hoping that Jobs would use the speech to unveil updates to the iPod or a new phone left disappointed. Considering that the company is likely to wait another month or so before unveiling enhancements to iPod ahead of the upcoming holiday shopping season, investors may face about three to four weeks with mostly negative news.

If the options issue grows more ugly, and the risk of Mr. Jobs’ departure rises, the stock could come down pretty hard. How hard? A retest of support at $60 seems almost certain, with penetration setting up a possible slide to the $55 to $54 range.

A move back to this area would create an enticing entry point, as Apple’s iPod revolution remains in full force and product momentum is better than analysts expected. But none of that will matter if Jobs -- the very heart and soul of the company --- were to lose his job.