Note to self: Andy Kessler like Steve Jobs is crazy but what he writes below makes sense in a wacky sort of way. Need to read Running Money for more of his wacky theories! I'd rather live in Andy's 'Apple gets $65' from each iPod world rather than the other world of $4 from each iPod.

From Andy Kessler: WSJ: We Think, They Sweat.:


Over the last year, two things have happened. First, Apple has increased their sales by over a third, almost all of it from increased sales of iPods - those 2 million of them at $265 each last quarter and another 100 million songs sold via their iTunes service. An iPod is just the combination some Apple software, cheap disk drives and a $12 chip a Silicon Valley company named PortalPlayer. I calculated that Apple pays $200 each per iPod to Chinese assembler Inventec to slap it all together. Even with cheap labor, Inventec has almost no profits, I'd bet under $10, probably more like $4. PortalPlayer, by the way, emails their design to Taiwan to be fabricated, with profits of some $5 per chip.

The second change since a year ago is that Apple's stock has gone from $21 to $64. Pretty cool, capitalism at its best. Why? Because Apple keeps $65 per iPod - money chases profits! If you assume the stock increase is all due to the iPod (it is), then that business is worth some $15 billion. Add in PortalPlayer's market value of almost $1 billion and you start to get a feel for how the world works. A $1.5 billion trade deficit increases wealth in the U.S. by some $16 billion - I'll take that trade any day. So will all the holders of the retirement accounts at Vanguard and Fidelity and Janus and Lord Abbett who own Apple's stock. Why am I caring about deficits again?

Trade deficits are just an economic construct, and lowering the dollar won't solve a thing. We are already moving low margin, low paying jobs overseas, but fortunately, are left with high margin, high paying intellectual property jobs. Would you rather own Apple making a margin of $65 or Invetec with $4, on the same product? Me too. We may have trade deficits of $550 billion this year and, but we enjoy a huge margin surplus.


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