Apple

Apple shares took a sharp drop to start the day Thursday, as the markets opened after Wednesday's news that Steve Jobs would take a medical leave of absence.

(Credit: Yahoo Finance)

Update at 2:29 p.m. PST, with closing stock price.

Shares of Apple took a hit Thursday at the market open, falling 5.7 percent as investors demonstrated their anxiety about the company following the news that CEO Steve Jobs is taking a medical leave.

Apple opened at $80.50 a share in morning trading, down from its close of $85.33 a share Wednesday. But by the end of the regular trading session, Apple narrowed the gap, with its shares closing down 2.29 percent to $83.38 a share.

While a number of Wall Street analysts predicted Apple can stay on track with its deep executive bench, investors remain skeptical whether the company's vision and momentum can remain should Jobs' leave extend beyond the summer.

In his tenure, Jobs has provided a clear voice and direction regarding markets that Apple would enter and the types of products, such as the iPhone, for those markets. It remains to be seen whether his disdain for consensus-building and the homogenization of ideas will be discarded in his absence.

"Apple's command and control structure has worked well for the company," said Ashok Kumar, an analyst with Collins Stewart.

Kumar noted, however, that while no one executive can fill Jobs' shoes, the company can move forward with a "group genius" approach.

But one analyst wasn't so sure, downgrading Apple's shares to underperform, or "sell," noting concerns over Jobs' medical leave and the effects of the recession on Apple's products.

Analyst Michael Abramsky of RBC Capital Markets noted in his research report released Thursday:

CEO Jobs' unexpected leave of absence raises near-term uncertainty regarding leadership. Jobs is widely viewed as Apple's chief innovator, dealmaker, leader, deeply involved in minute decisions, inextricably tied to Apple's brand. Jobs' being sidelined for 6 months or more and unavailable day-to-day - with no clear successor - in our view raises risks to Apple's sustaining its stellar record of innovation going forward.

Abramsky also noted in his report that further deterioration is expected in consumer electronics and Apple-related spending over the next three months.

In an RBC IQ/Changewave survey for January, 28 percent of respondents said they planned to buy a Mac laptop in the next 90 days, versus 33 percent of survey respondents back in November.

Analyst Andy Hargreaves with Pacific Crest Securities, meanwhile, believes Apple's future innovation efforts would be better spent exploiting the popular iPhone as a technology platform.

"I think they created a paradigm shift with the iPhone," Hargreaves said.

Expanding the iPhone as a platform through additional services, software, and hardware would also require less high-brow vision.

As for Apple's stock price, which analysts such as Gene Munster of Piper Jaffray described as grossly undervalued and a buy opportunity, it already had concerns over Jobs' health baked into the price, noted Hargreaves.

"Given where the stock has been trading," Hargreaves said, "successful innovation has not been embedded in the price."

Apple's disclosures regarding Jobs' health have stirred concern over the timeliness of disclosures and the quality of Apple's corporate governance. All this also raises the question of whether Apple is setting itself up to be the target of shareholder lawsuits, noted a Reuters report.

Apple executives have settled a shareholder lawsuit filed over its stock-option backdating practices for $14 million.

The executives themselves, including CEO Steve Jobs, won't actually have to cough up the cash: that's why they have insurance, according to the Associated Press. And the money actually goes to the corporation, not the shareholders themselves, because this was a "derivative" lawsuit that sought compensation on behalf of the company. Attempts by shareholders to sue on their own behalf have been stymied by the fact that Apple's stock has actually risen since the backdating was revealed in late 2006.

Unless anything else surfaces, this is probably the end of Apple's stock-option troubles, which forced the company to take an $84 million charge in 2006 to properly account for stock option awards that were given to executives with cherry-picked grant dates. No one from Apple's current management team has been charged, and Securities and Exchange Commission cases against former executives Fred Anderson and Nancy Heinen have been settled.

Former Apple general counsel Nancy Heinen has settled with the SEC over charges that she improperly backdated stock options at the company.

The SEC filed a lawsuit against Heinen last year charging her with cherry-picking grant dates for stock option awards to Apple executives--including CEO Steve Jobs--and falsifying paperwork in order to cover up the selection of the favorable dates. Stock option backdating is legal if properly disclosed, but dozens of companies--including CNET Networks--in the earlier part of this decade failed to do so, and executives at other companies have gone to prison as a result.

Heinen will pay $2.2 million in penalties and fines to settle the case, without having to admit or deny any guilt in the case, according to Reuters. Her attorney issued a statement following the release of the settlement: "I cherish the great people I worked with at Apple, and I am proud of my contributions to its historic turnaround and current success. With this lawsuit behind me, I look forward to addressing the greater challenges of social justice and economic disparity."

Apple conducted an internal investigation into stock option backdating at the company in 2006. While it admitted the practice occurred, the company cleared all current executives of the company, including Jobs, of any wrongdoing. Former CFO Fred Anderson was also sued by the SEC along with Heinen but he settled his case the same day it was filed.

Apple faces a new lawsuit filed by shareholders angry over its stock option backdating practices.

Several shareholder suits have already been filed, but the latest one comes from the Boston Retirement Board, according to Andrews Publications over at Findlaw. This group claims to have "confidential information" regarding Apple's stock option backdating obtained through an inquiry via the Santa Clara County Superior Court, according to the article. However, it says it can't publish that information until a judge rules on how to treat the sensitive documents.

Apple acknowledged in late 2006 after an internal investigation that certain stock option grants, including one to CEO Steve Jobs, were improperly backdated to use a more favorable price when setting the options in order to make them more valuable. The company has maintained that while Jobs was aware that the options were backdated, he was not aware of the accounting implications of the practice. Backdating stock options is fine as long as you disclose the practice at the time, which Apple and dozens of other companies--including CNET Networks, publisher of News.com--in the early part of this decade did not do.

The suit, filed last week, charges that executives and directors harmed shareholders by failing to detect and prevent the backdating. A similar suit by the New York City Employees Retirement System was thrown out in November, but others are pending.