Steve Jobs Knows Exactly What He's Doing

P/>SAN FRANCISCO -- Amid all the kerfuffle over the disclosure by Apple(AAPL Quote) CEO Steve Jobs that a "hormone imbalance" was causing a yearlong weight loss that was increasingly noticed by the public, a nagging question keeps floating to the surface:

Why say something now?

Don't take this line of inquiry as an attempt to join the chorus of amateur endocrinologists who want to parse each word the Jobs letter for what it really says -- or doesn't say -- about the man's health. Speculation is only so valuable, as those who put Jobs on his deathbed have just found out.

Of course, as my colleague Scott Moritz rightly pointed out most recently, Apple and Jobs aren't exactly the most credible when it comes to the timely disclosure of the CEO's health. Recall that a few years ago Apple's board and Jobs sat on news of his pancreatic tumor before making it public.

But now that we have some disclosure on the latest illness, it seems like a fool's errand to figure out how much of it passes the sniff test.

Let's take the man at his word and accept for the time being the following blunt premises: 1) Jobs isn't going to die anytime soon; 2) Jobs' cancer has not returned (as he himself declared a few months ago; 3) Jobs is going to be CEO of Apple for the foreseeable future.

The question still remains: Why say something now?

According to Jobs, the move was to answer the flurry of rumors recently set off regarding his health, sparked by the announcement last month that he wouldn't be giving the keynote address Tuesday at the company's MacWorld expo, and further, that this year's MacWorld would be the last. With his letter, Jobs says, "we can all relax and enjoy" MacWorld.

That's no doubt true, but as Apple followers well know, the latest rumors about Jobs' health are just that -- the latest rumors. Earlier speculation going back to last summer regarding Jobs' gaunt appearance was immediately met with the company's contention that the CEO's health was a "private matter."

What, then, has changed to make the company and Jobs beacons of corporate governance, announcing within "weeks" that the CEO is undergoing a relatively "simple and straightforward" remedy for a health problem?

Could it be that no real business reason exists to lift the stock significantly higher in the near term?

Or put another way, does the company's decision to disclose this news now say anything about how it's feeling early in the year about its business?

This isn't to accuse Apple of any short-term stock manipulation. The company's competitive position is incredibly solid, but growth prospects are at risk as consumers pull back their spending. For Apple to remove what could be an overhang to its stock for months is smart, not manipulative.

Shares of Apple were recently up 1.2% to $95.76; the stock is up 5.5% since Jobs' letter was released.

On Tuesday, Oppenheimer upgraded the stock to outperform, tossing a $135 price target on the shares, saying the leadership risk is now less acute, and investors can re-focus on the "Apple story."

But that story is now a little more uncertain. Consider the company's main businesses:

Mac: Demand for PCs and notebooks has been sluggish as customers are beginning to opt for lower-cost "netbooks." Research firm NPD said that Mac unit growth shrank 1% in November, lower than 2% overall growth in PC shipments. The company's desktop sales dropped 35% in the month.

iPod: By most accounts, the ubiquitous music player had a solid holiday season, and sales should beat earlier estimates. But the days of being a significant growth driver for the company are over. A recent suggestion by writer Dan Frommer that the company's 22.1 million iPods sold for Christmas 2007 is a record that will never be broken is a good bet.

iPhone: Here's where the company's growth prospects lie, and the reason why investors and pundits are hoping the company is planning a price cut and/or cheaper versions (the so-called iPhone nano). Reports of scaled back production, as well as pronouncements by companies like Nokia(NOK Quote) on global handset sluggishness, don't bode well for significant outperformance.

Unfortunately, nothing from Apple's MacWord keynote address on Tuesday given by marketing chief Phil Schiller, while delivering some cool new features, changes the above outlook.

For longer-term investors willing to climb on board now, Apple shares are still very compelling valuation-wise at under 9 times cash flow, despite already rising 20% from their November lows.

For those looking for significant upside in the next couple of months, Steve Jobs may have done all he can for now.