Time to buy Apple

For the second time, Steve Jobs will move away from running the company he cofounded, Apple. If history is any judge, this won’t go well for the company. But there are lots of reasons to think history will be a poor judge of Apple’s future performance.

Let’s start with some similarities between this departure and the last one, in 1985. First, in each case, Jobs had led the company for a decade and a half. Second, in each case, the five years preceding Jobs’ departure saw a revolutionary and innovative transformation of the company. In the mid-80s, Apple had been through a cycle of innovation in personal computers that culminated in the Macintosh, establishing the dominant design for user interactions on computers. This time around, Apple appears to have done the same for touch mobile devices.

Now, the differences. First, there is every reason to expect that Jobs second tenure at least in part has focused on baking innovation into the organization. A couple of months ago, Adam Lashinsky in a Fortune magazine article (sadly, only available behind a paywall, but it will be the best 99 cent purchase ever on your Kindle) described the cultural transformation inside Apple. The last 15 years have been all about establishing an internal culture for innovation and a set of norms of behavior and expectations. While the culture came from the drive of Steve Jobs, it is a reasonable expectation that he infused it into the organization itself.

Second, Apple lost out following its first period of dramatic innovation because it failed to meet low-cost competition. (While many believe it was an open versus closed issue, that was the side effect rather than the ultimate problem.) This time around, Apple appears to have pushed hard on the cost envelope. The reason the iPad is so dominant in tablets, while competitors appear to be just giving up, is all about cost. No one has produced a cheaper device. So even aside from the obvious quality differential, Apple is leading on the dimension that failed it the first time: cost. And it’s doing the same in lightweight laptops (which means that Apple is squeezing Netbooks from both sides). And who is probably the person most responsible for this state of affairs? Not Jobs, but rather Tim Cook, Apple’s former COO — who is now Apple’s new CEO. The signal to competitors is very, very clear.

For these reasons, Apple sans Jobs is still a good bet. The question is how much the Jobs factor will contribute. There has been a modest drop in Apple’s share price in premarket trading on Thursday morning. But markets being what they are, excess volatility accompanies big news. That also means that Apple’s share price will likely bounce back when it announces strong earnings and new product releases. Jobs will never be a distant memory, but his hand is imprinted on the company’s future.

A version of this post first appeared at Core Economics. And, of course, I’m no investment adviser, so caveat emptor.