Apple shares rise as concerns ebb over backdated stock options

Apple Computer shares rebounded after investors discounted the possibility that the company's chief executive, Steve Jobs, could be implicated in an investigation of the company's stock-option grants.

Shares of Apple rose 1 cent to $81.52 at the close of trade on the Nasdaq stock market Wednesday. They had fallen as much as 5.8 percent in early trading after a legal newspaper reported Wednesday morning that prosecutors were examining whether company officials had falsified documents to inflate the value of options. Several analysts issued reports saying that the news would have no impact on Apple or Jobs. A report of a 413 percent rise in Christmas traffic at Apple's iTunes store may also have helped the stock.

"There was a realization that it will take an awful lot to remove Steve Jobs from office, and people saw the drop as a buying opportunity," Rob Enderle, an analyst with the research firm Enderle Group in San Jose, California, said in an interview.

The fake documents were uncovered by Apple during an internal investigation that concluded in October, The Recorder, a legal newspaper in San Francisco, said on its Web site, citing individuals familiar with the case. The information was passed on to U.S. prosecutors, according to The Recorder.

In a separate report, The Financial Times said that documents were falsified to show that the Apple board had approved a 7.5 million-share-option grant to Jobs in 2001, according to people familiar with the matter.

When Apple released the results of its three-month investigation in October, it did not disclose any falsified documents. The company said that it found backdated option awards on 15 occasions from 1997 to January 2002. While Jobs was aware of some instances, he did not benefit, Apple said at the time. The report sparked concerns that his position might be at risk.

Gene Munster, an analyst with Piper Jaffray, wrote in a note Wednesday that the likelihood that Jobs had falsified documents was "very low." Benjamin Reitzes, an analyst at UBS, said in a note that Apple was likely to put the options issue behind it.

An Apple spokesman, Steve Dowling, declined to comment, other than to say that the company was providing all details of its investigation to the U.S. Securities and Exchange Commission.

Jobs hired his own lawyer to represent him during the inquiry, The Recorder said. Some analysts said they were not concerned by that development.

"That's standard operating procedure to hire your own attorney," Jonathan Hoopes, an analyst with ThinkEquity Partners in New York, said in an interview. "A company at the end of the day has to defend itself. We still don't think he's going to lose his job."

Apple is one of almost 200 companies under some form of investigation for backdating option grants. At least 69 executives have lost their jobs as a result of the investigations.

Options allow holders to buy shares at a later date, usually at the market price on the day they were granted. Backdating to days with low prices gives holders a built-in profit as shares rise.

The company began examining its option grants in June, and said this month that it would restate results to reflect grant costs. The law firm Quinn Emanuel Urquhart Oliver & Hedges conducted the investigation. Apple said in October that it had concerns about the actions of two former executives.

Swarms of online shoppers armed with new iPods and iTunes gift cards apparently overwhelmed Apple's iTunes music store over the holiday, prompting error messages and slowdowns of 20 minutes or more for downloads of a single song, The Associated Press reported from San Francisco.

Frazzled users began posting urgent help messages Monday and Tuesday on Apple's technical forum for iTunes, complaining that they were either not allowed into the store or were told the system could not process their request to download songs and videos.

It was not immediately clear how many people were affected by the slowdowns, and Apple Computer would not immediately comment Wednesday on what caused the slowdown and whether it had been fixed.

Analysts said the problems were likely the result of too many people with holiday iPods and gift cards trying to access the site at once.

Traffic indeed was heavy over the holiday, with more than four times as many people visiting the iTunes Web site on Christmas than at the same time last year, the online market researcher Hitwise said Wednesday.

2006 Technology in Review

Good gadgets — and a near miss — in 2006

A little bit of flash, a little dash, one miss

In bringing a new electronic gadget to consumers, marketers determine what the masses want, product managers guide the design and engineers bring the thing to life. That's a lot of cooks. No wonder so many people around the world are, at this very moment, staring at newly unwrapped electronic gifts in utter bewilderment.

Even so, brilliant ideas sometimes make it off the drawing board, past the layers of lawyers and onto store shelves. Sometimes, a delicious idea is part of a triumphant overall product. Other times, the flash of greatness is wasted on a turkey.

Here, then, is our second annual Top 10 List, not of the greatest tech products of the year but of the greatest ideas and individual features that surfaced. It's a little tip o' the eggnog to the great thinkers whose ideas made it out of committee.

The flash-drive fuel gauge

You gotta love those USB flash drives. They're cheap, shiny and tiny, and they offer a practically perfect way to transport computer files.

That's the beauty of Lexar's Mercury flash drive, whose case has an actual "fuel gauge," a bar graph that tells the user, without even plugging the thing in, how full it is.

Thanks to a technology called E-Ink, this graph is always on and stays visible indefinitely, without requiring any power whatsoever.

The magnetic power cord

Somewhere there's surely a support group for people who have dragged their $2,000 laptops to the floor by tripping on the power cord.

That doesn't happen with Apple's 2006 laptops, whose power cords connect with a powerful magnet rather than a pin or a plug. If someone trips or yanks on the cord, the magnet detaches and drops harmlessly to the floor. The laptop switches seamlessly to battery power, saving your data, your money and months of therapy.

Better yet, this magnet has no "right side up." It works no matter which way you slap it on and it lights up to confirm that you're plugged into a working outlet.

The two-stage flash

It may seem counterintuitive that the more expensive the digital camera, the less likely it is to have a built-in flash. The manufacturers assume that if you're that much of a professional, you certainly own an external flash unit.

Among other virtues, you can aim an external flash upward so that the light bounces off the ceiling, rather than blasting into your subject's face. The result is more even, flattering light.

Panasonic's Lumix DMC-L1 camera offers the best of both worlds. If you push the Open button for the built-in flash firmly, it pops up and faces forward.

But if you push lightly, it pops up to a different position, angled 45 degrees upward. Yes, in bounce-off-the-ceiling position. No other digital SLR offers this ingenious feature.

Music beaming

The Zune, Microsoft's new music player, does something amazingly well that its rival, the iPod, doesn't do at all: It lets you beam songs or photos wirelessly to another Zune. It's easy and fast, and it could be a great way to discover new music recommended by your friends.

In practice, there's more to the story. To avoid lynch mobs from the record companies, Microsoft designed the Zune so that beamed songs self- destruct after three plays or three days, whichever comes first, even, idiotically, your own recordings like college lectures and garage-band demos.

The Zune, therefore, is that classic case: a killer idea diluted by a ham- handed execution.

The video-game workout

Nintendo's Wii game console, on the other hand, is a stellar product that succeeds precisely because its central idea is unencumbered by corporate baggage, and is tons of fun.

The masterstroke is its wireless controller, which detects the motion of your arm in three dimensions and in real time. As you swing, jab or whap through the air, your animated character on the TV screen swings the corresponding baseball bat, tennis racquet, fishing rod and so on.

Perhaps it's a bit much to suggest that this video game may actually help to address the sedentary-youth problem. But my own two primary schoolers play the Wii's tennis-doubles game nightly with full-body vigor and are perspiring after half an hour.

The trackpearl

On most BlackBerry cellphones, you scroll through onscreen choices using a side-mounted thumb wheel. Too bad if you're a lefty, or if you're trying to move horizontally across the screen.

The face finder

Several 2006 Canon cameras, including the image-stabilized SD800IS, offer face-recognition software. In this mode, the camera identifies human features in a scene, even in group photos. Little rectangles appear around each face (up to nine in a scene) as you view the back-panel screen; these little rectangles move around, tracking your subjects as they shift.

The point of all this is to calculate focus and exposure properly for portraits. The facial recognition eliminates shots where, for example, the camera locked focus on something in the background. And it forces the flash to throttle way back to avoid blasting nearby faces into whiteness.

Point without pointing

The speech-recognition software in Windows Vista offers anyone who can't or doesn't like to type a slick alternative. Wearing a headset, you can dictate text into any program, and "click" any button or tab by saying its name.

But what if you don't know its name? What if it's some cryptic toolbar icon? You can't exactly say, "Click the little thing that looks like a watermelon seed on two beach balls."

What you can say, though, is "Show numbers." The program immediately overlays every clickable thing on the screen with colorful numbers. You can just say "21" (or whatever) to click the corresponding spot, a trick that works especially well for navigating Web pages.

The simple cellphone

Plenty of people have, while grousing to their spouses, "invented" a cellphone that does nothing but make phone calls: no Internet, camera, music, text messaging or any other complicated gimmickry. In other words, it is not such a new idea.

GreatCall, however, has actually gone and built one. Its Jitterbug phone is a big, finger-friendly flip phone with huge, light-up number buttons, no nested menus at all and a simulated dial tone.

Any big-name cell carrier can beat this phone on pricing, network coverage and, of course, features. But for the aging technophobe, this one's an idea that works.

A sparkling year

You could fill 20 more columns with all the good ideas that popped up this year. For now, though, here's a toast to the dreamers who thought up these delicious twists and to the committees that let them through.

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