iPod Economics

[via Roland Tanglao] Andy Kessler writes:

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, Id 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 Apples 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 PortalPlayers 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.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.