Apple's Options Scandal: A Marketer's Perspective

| About: Apple Inc. (AAPL)

By Carl Howe

Apple Computer yesterday announced it is going to restate some of its results because of stock option irregularities. Bad news, no question. But you have to give the company credit. They didn't wait for SEC Chairman Christopher Cox to come calling and ask for their records.

This was the result of the company's own investigation started back in June. So while it's a bad situation, Apple got the information out in the open quickly, and did it itself. That's proactive marketing of bad news. Yeah, they'll take a hit in the market for the next few days. But I don't expect to see any long-term damage here. They're trying to clean up their books and do it right.

We won't know the full effect of this investigation until Apple reports its next quarterly result, which will be late according to the story. I'm betting that Apple's actual earnings won't change more than a penny or two. Why? Do the math. The company reports the largest option grants, and while Apple stock is volatile, it isn't that volatile that backdating of options is going to have a huge effect on earnings for the volumes of options it granted.

As almost all of the stories noted, Steve Jobs options expired worthless, even if he was granted restricted stock to replace them. So I can't see how option grants of that type are going to account for hundreds of millions of dollars of charges necessary to move the earnings by more than a penny or two.

On a more positive note, Apple also recognizes that there is potential for marketing its brand in its service as well as in its stores. Ted Lee reports the response he got when he fired off a letter to Steve Jobs complaining that Apple service was not going to be able to get his MacBook back to him in time for the World Wide Developer's Conference this week.

Well, one of Steve Jobs' personal assistants (he has many) grabbed the message and ran with it, and Mr. Lee should have his laptop back today. The point? Mr. Lee has blogged the experience, and his blog now has 764 votes for the story on the front page of Digg.com. Not a bad return for the marketing investment of a couple phone calls.

The bottom line: These two stories prove why today Apple is worth more than Dell. When bad news hits, Apple gets it out. When people complain, they look into issues and try to deal with them. Yeah, they've still got some issues to work on, like not suing bloggers just trying to get a scoop. But this one company still markets what it stands for better than any other firm in high tech.

Full disclosure: I have a small long position in Apple stock, which I might add to if the stock drops enough.