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DVD Player Maker's Margins just $1
callipygian-showsyst writes "This news.com story tells how Chinese DVD player manufacturers are only making $1 margins per player! The story says that 'Commoditization is hitting China's DVD player manufacturers hard, according to researcher iSuppli, Between January and May, the average selling price of a DVD player exported out of the Guangdong province came to $40.80, leaving just about $1 in profit margins for the manufacturers.'
You wonder if other business, like low-end PCs hardware, are in similar trouble."
And all so that some trailer trash lady can get trampled for an Apex DVD player the day after Thanksgiving...
i knew i should have waited 10 years instead of getting that $300 dvd player!
...since they sell their hardware at a loss. (Granted, they get money from the service subscription.) Microsoft loses billions of dollars on the XBox, to sell games. This is common, and will be getting moreso. It won't be long before hardware is essentially free, and the software/services you buy are where the money is generated.
Find out about the Lexus Rx400h Hybrid!
That is the 'new' economy.. Forget the days of high profit items for most industries that
are technology related.
This is a byproduct of more efficient manufacturing, and in many cases, *fair* competition..
( something that we don't currently have in this country , but that is a different subject )
Don't expect this trend to change any anytime soon either...
Too bad it also means fewer jobs to make the money to buy the cheap items... Since it takes fewer people to make the same # of items it did 10 years ago.
---- Booth was a patriot ----
You play to the strengths of the manufacturing of each country, take out the middleman, and we no longer have to pay inflated costs for everything.
Kind of wierd to think that it's cheaper to get something made and shipped halfway around the world than it is next door, but if it makes a dollar go farther in this economy I'm all for it.
And we care why?
It's called supply and demand. Yes, it impacts computer hardware too. Adapt or die. There's nothing to see here.
Just like in other industries, a good amount of producers and a huge amount of consumers, but limited distribution (Walmart, McDonalds, Home Depot, etc.) I can't remember the last time I saw clothing may in the US. At the same time, almost everything I see (not buy) is really expensive despite the 'cost savings' the distributor gets from outsourcing to Vietnam, China, etc.
when you're more than making up for it in volume. Oh, and of course, let's not forget the cost of living in China is not comparable to the West.
They're leaving out a couple of details. Is this net or gross profit margin?
is kind of like the dot com bubble of sorts. A few people made the risky investment, and made a lot of money off it due to the availability of cheap labor, lots of natural resources, an interested government etc. Then the gold rush started, and people just poured money into China without thinking in the long term, they were told that China was a guarenteed gold mine. This led to a glut of over production(not just in DVDs, but almost any commodity you can think of), and now people have to fight eachother off with lower and lower margins to survive. That is what happens in a commodity market. They knew that getting into the business, and now we are supposed to feel bad for them?
I for one will not be crying because they were too stupid to plan more than a month ahead.
That's a $1 profit per player to the owner(s). That's plenty to live off of. This is a no-story. The workers are still getting paid, and that amount is already accounted for with this $1 figure.
Enjoy your stay.
If those players were made in the US or even Japan they would start at $100 a piece. If you're an unemployed electrical engineer in the US / Western Europe (and I know there's quite a few), relieve the boredom with a $35 multi-region DVD player.
Welcome to globalisation too - those Chinese manufacturers _are_ in it for the money
"It's not your information. It's information about you" - John Ford, Vice President, Equifax
The CEO can only give himself a -1- million dollar bonus this year, and the stockholders are barely taking in any dividends! They better start cutting wages!
Let's not forget that one can hate his government, but love his country.
we should cut out the middle man?
Lets start buying right from the source, offer him $15 profit on his DVD players. I can't think of many companies who would say no to a 150% increase in profit
I like muppets.
My last company was shopping around for various parts for one of our products. Wiring harnesses to be specific. We shopped a number of companies in the US, most of the harnesses were pricing out at around $16 each. When a board of director for the company called around to some of the smaller factories in his native land, we was able to get pricing on the harnesses in the $2 range. Why the big difference?
I asked the same question of him, and this was how he put it. Some of it is labor. A lot of it is greed by management. In the US, companies aren't content to break even. They feel they have to make profits every year, owners, management make more money than the previous year, and on and on. Pretty soon, they are priced at non-competative levels. In his country, a business is happy to be able to pay it's employees, sometimes employing an entire village, thereby keeping that entire village alive. They aren't concerned with profits. Just that everyone have a decent quality of life, and that the can stay open for years to come. They don't feel the need to be the next Microsoft or GE or HP.
Well, that's what told me.
for the poor Chinese manufacturing industry; having all that demand for their products must be horrible for them. Never mind *our* manufacturing industry, which largely doesn't have that opportunity at all. At least, not with Wal-Mart hawking these Chinese DVD players for less than half the price of what a VCR would formerly sell for.
And note that--from the article--apparently their best move is to consolidate--i.e, get bought up into some mega Chinese manufacturing company that can then increase profits, and perhaps eventually exercise some monopoly power to boot.
Thank God they haven't figured out how to do that yet--let's hope Wal-Mart doesn't show them how.
pb Reply or e-mail; don't vaguely moderate.
I don't get it, what's the pun?
Think of the iTunes Music Store, which isn't making much money but is selling tons of Apple hardware in the form of beautiful, beautiful iPods.
I'm not sure if I buy that idea just yet, but maybe Sun is right about something?
Perish the thought!
I got some 512MB PC3200 DDR RAM modules for $75 or so each online, from a reputable warehouse/discount outlet. Everyone else wants at least $100 for them. Since I have a motherboard that has two DDR slots and two SDRAM slots (you can use one or the other but not both simultaneously) I also looked at SDRAM, since I figured it'd be cheaper. Nope! Same prices.
... $50? I don't recall anymore) but the prices never seem to go down, which they should be as the industry matures. They're not.
If commonly-needed computer components were being sold at such low profit margins, we wouldn't be getting ripped off so badly (last time I upgraded my machine a while back I got 512MB of RAM for
i am a soviet space shuttle
bah, if you're selling your product for less than you ought to be, that's nobody's fault but yours. This is exactly what makes me shake my head when I see hard drive manufacturers complaining about not making enough money. Well, sell your damn product for what it's actually worth, instead of selling it for way less than it should be sold for. Personally I wouldn't go make something at a cost of $10 and sell it for $5, but that's just me.
Most new DVD players at Wally World right now (using Wal-Mart as an example because their shit is cheap) are between $70 and $100. Thats a far cry from the $700 and $900 DVD players from 1998.
How low does a price have to drop for an item for it to be commoditized? $200? $100?
If that's the case, PCs certainly havent hit that commoditization point yet... unless you count those crappy Wal-Mart ones with no OS.
So, how long until we see PCs for $50?
Isn't this the scenario that Ayn Rand dreamed about? A company that's achieved the ultimate in efficiency now making huge volumes of sales as a reward because no one can become more efficient than them and make a cheaper product?
Actually, someone will but they'll cut even more corners to do that and humorous customer stories of Apex's power buttons falling off will become "Remember when things weren't that bad?" tales of the past.
Maybe I'm slippery sloping but things already are pretty crappy in terms of low-end DVD players.
Fair is defined as a level playing field. If we are playing a game of soccer, and your team cheats, the match was not fair. If no one cheats, it is a fair match. It is not required that our teams like each other: it's quite possible to play a fair match against someone you absolutely despise.
Fair competition is the same. If a government is heavily subsidizing a company, that's not fair competition. If a group of companies is colluding to drive a competitor out of business, that's not fair competition. If lots of people are making the same thing, thereby driving down prices, that's fair competition.
What you seem to be looking for is no competition, wherein either a government or cartel sets prices, rather than the market. That has nothing to do with fair competition, and is really about the exact opposite.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
At least close to perfect competition since in perfect competition, the profitsare zero. I don't really see how this is a problem.
If you had made that analysis 200 years ago, then we'd have 99% unemployment by now since it currently takes 1 person and a lot of machines to do the work of 100 1800's laborers. The long term outcome isn't fewer jobs, it's more stuff since demand will keep up and lower prices mean a better-stretched dollar.
In this way, low margins are a sign of a very efficient world economy. Nothing bad here that I see.
-Looking for a job as a materials chemist or multivariat
Once you figure in shipping costs, customs & foreign legal costs, time delay, and sometimes translation problems sometimes changing how you operate in the USA can actually be cheaper.
I remember reading how MPC computers (formerly Micron) was considering outsourcing like dell and gateway have done. They took a different approach, and are doing much better. They have found that they can compete while staying in the USA and not outsourcing anything. Of course, the fact that they're not in a high-rent area of the USA probably helps. The cost of living in areas like California and NYC really skews the numbers.
I don't read AC A human right
``You wonder if other business, like low-end PCs hardware, are in similar trouble.''
Yes, they are. This is why they try to squeeze every cent out of everything, leaving us with motherboards with leaking capacitors, harddrives with 1 year MTBF, memory errors, etc. Those of us who run cheap PC hardware, anyway.
Please correct me if I got my facts wrong.
Those DVD players cost $40 only because the Chinese government keeps the Yuan artifically pegged at roughly 8 yuan to 1 US Dollar. Floating the currency will bring the ratio up to 4:1, maybe even 2:1.
The highway infrastructure, at least in the United States, is not subsidized by non-users at all: it's entirely paid for by the approximately $0.30/gallon taxes on gasoline (in some areas supplemented by local gasoline taxes and/or tolls).
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Since when is a company making profit in trouble?
I flubbed the link, here is the correct one:
l /main587049.shtml
http://www.cbsnews.com/stories/2003/12/05/nationa
That's pretty much what selling a commodity is all about: scraping by on pennies of profit and hoping for lots of volume. When your product is completely interchangable with somebody else's, it's very hard to compete on anything but price. That's why premium brands go to so much trouble to differentiate their products, even if the difference is as minor as a cosmetic flourish and a $100 million branding campaign. If you can't afford a $100 million branding campaign, you're stuck racing all your competitors to the bottom. It's awesome for the consumer, but sucks to be the manufacturer.
This is a standard shakedown. So what?
The article states a volume of 35 million units in the first quarter of this year, with no sign of slowing down. This isn't trouble -- it's a competitive commodity market, like almost all the markets Chinese companies work in. They're quite accustomed to this sort of phenomenon, and a $1 profit margin ($140M/yr @ volume) really isn't that bad.
I need to start checking over my posts before submitting
$1 margin for the manufacturers means that the owners of the Factory not giving(or less) the money to the workers.
My (current contract) Indian boss called a staff meeting at 4:45 PM Friday (!). Announced he was under a mandate from headquarters to reduce his budget costs by outsourcing a percentage of work. Then he asked us for suggestions on what parts of our work could be outsourced.
This is definitely the right way to motivate your staff before a weekend. Management greed and stupidity know no bounds.
I wanted to suggest "How about outsourcing management to Bangalore?" but I have to keep putting rice and fishheads on my dinner table.
1. Just add more feature like "-W" and hike the price.
2. Bigger profit.
Adam Smith (clue: economic theory) couldn't have listed it in fewer steps.
Maybe these businessmen needs to take capitalism lessons that made USA the powerhouse of economy.
You do realize that labour costs are one of the larger costs of production? You must be using a lot of capital equipment in order to compensate for 100x increase in labour costs with respect to China ;).
Comment removed based on user account deletion
when they reach 14, they start to realize what a pun is...till then, we'll just have to cope.
EETimes covered this last month. http://www.eet.com/showArticle.jhtml?articleID=256 00132
This is the way it works. Every new handset generation comes with a compelling new set of features. Each is subsidized by service providers to get it on the market. But each feature set quickly triggers a market share war among service providers, causing them to offer the handset for bubble-pack pricing or to simply bundle it with a service contract and give it away. The only money for the service provider is in services -- not in hardware. This exerts incredible pricing pressure on handset makers, both to innovate and to ruthlessly eliminate their own margins.
This is just the way things go in electronics manufacturing, and it makes sense. Electronics technology moves much faster than manufacturing technology, so there is just inherent pressure in the market that eventually drives out profits. The nice thing about this is that it forces innovative new ideas to come along to a) Make improvements in manufacturing efficiency, b) Stay on the bleeding edge of technology with new products that can generate high margins for a good while (see Dell's foray into high-end "gaming" systems) and c) Build highly innovative products with killer features and high consumer appeal (see the iPod).
As for the commodity manufacturers, the market corrects itself. There is a glut in worldwide DVD-player manufacturing capacity. Some of these companies will continue to eek out meager profits building DVD-players, while others will retool and remain successful manufacturing the next generation of commodity electronics, and still others will die. But this is merely a sympton of progress. Those companies that survive will be the reason we can get LCD TV's for $200 by Christmas 2006, and the whole cycle will repeat itself.
HO
Comment removed based on user account deletion
Service jobs have taken up the slack, consumption hasnt been growing at the same pace as productivity for a long time.
I thought it was Capitalism (with an 'a').
Capitolism is the study of the main building found in Washington D.C., U.S.A where all the congressmen/women congregate.
But then again, you can be correct if one thinks hard about this.
If Chinese jobs are moved to the US would that be insourcing?
LK
"Hi. This is my friend, Jack Shit, and you don't know him." - Lord Kano
This is starting to sound like Communism.
oh, Red China is still a communist, last time I checked the CIA Fact.
I see... Nothing new here, move along.
Whenever gas prices go up, people get pissy and start demanding the government do something about it.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
we should cut out the middle man?
Lets start buying right from the source,...
Unless you get on a plane, fly to China, show up at the factory and hand the guy $55, you can't buy direct from the source. Unless he wants to change his business model, and sell it to you. Which requires a big adverising budget (to get you to buy from him and not the factory next door), storefronts everywhere (down the street from you), big customer management outlay (call center, warranty handling, etc), capitol outlay for delivery (trucks, etc).
Bingo, he's just created a new division, and become his own middleman, and you get to pay the same price you do now.
If your currency is weak, in relation to another, it's easy to export to them, hard to import from them. Strong currecny goes opposite.
So let's say I'm an American manufacturer and I have something I want to sell to China, like maybe Intel. Well, if they fix their exchange rate artifically low, I have trouble competing since that makes my prices (from their view) artifically high.
With currencies there's no right or wrong way, strong and weak currencies both have advantages. If they get too strong or weak it can be problematic (Europe is warning money traders about runing up the Euro as it could hurt Europe's export market) however in general, there is a good and a bad side to currency moves in either direction.
Artifical fixing can be problematic, however, and China may find that they have to stop it if they wish to deal in the WTO. Fixed exchange rates are largely a thing of the past.
Hammer meet nail. You hit that one dead on!!! Mod this up to a 5 someone.
I'm sure the government is subsidizing the manufacturers like they do in other industries to squash foreign competition. They've been doing this on cotton products for years to lock out the Pakistanis and other rival producers.
www.lonseidman.com
Why don't they just increase their asking price? Duh. I don't believe this story for a second.
So with a $1 margin, they could up the price by $1 and make twice the profit.
Ok, with a higher price, they wouldn't sell as many, but adding $1 to the price isn't going to make much difference.
So for $1 more, they're going to sell maybe 95% as many with a $2 margin... that's 90% more profit!
Am I the only one who passed algebra class?
The company I work for outsources to China, and I can say unequivocably, our prices to the customer are lower because of it.
Also, just to to Wal-Mart and look at the price of a microwave oven. Think that would have ever dropped to the price it is at if there weren't cutthroat labor competition.
At least not the kind the Republicans are talking about. For example, medical malpractice rates. Several states have already put caps in place and it didn't budge insurance rates a damn bit.
They kept going up anyways because insurance companies couldn't competently invest the money they were being paid. They started doing riskier and riskier investments and when the economy went to shit, they couldn't cover their bills anymore. Jury awards have been trending slightly down for a while, actually.
Not to sound degradating, but do you really believe that the people who all run a corporation are trying to do nothing but poison the environment and put us all into economic slavery?
Corporations aren't evil; they're amoral. They're not out to poison the environment and enslave people economically; they simply don't care if that's the side effect. Just as long as they're "maximizing shareholder value", everything is fine.
You wonder if other business, like low-end PCs hardware, are in similar trouble.
What trouble? They're still making enough money to pay their saleries, their employees, the heating bill, equipment repair, etc. Why the hell do they need any more money than that? They should be happy they're getting an extra buck out of it.
... China wants control of future standards. They would rather sell razor blades than handles. Until they actually produce a substantial volume of actual content, they can't do much, however. If the government were to forbit the manufacture of foreign designs to eliminate imposed royalties, manufacture would just resume in India, and China would just have their own proprietary standard. See stories over the lsat year regarding the Chinese optical media standard, the spat over wireless protocols, etc.
Economics 455 called and said you failed.
Apparently, China is experimenting a bit right of Communism as they are taking in their usual cuts from the Chinese manufacturers.
Who are we to know that $1 is a token profit for her manufacturers?
Agreed with all of your points.
I'm just wondering how much are the states taking in their profit before it is really profit before we can actually label their economic model.
You can say similar things about nearly anything. For example, are bars taxed heavily enough to pay for the increased police presence required? Increased medical costs due to crash injuries? What about hardware stores that sell spray-paint? Are they taxed heavily enough to pay for the cost of graffiti cleanup? Etc.
And, fwiw, gas taxes actually do pay for an assortment of "other stuff" besides actual road construction and maintenance: usually there's an overrun, which is siphoned off into other budget areas. Often non-road transportation such as light rail and subways are also paid for by taxes paid by road users, so not only are road users paying for the roads they use, but they're also paying a portion of the costs of the subways other people use.
(and my numbers were a bit low; apparently the US gas tax average is $0.40/gallon, according to Wikipedia)
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
According to this post the patent fees for a DVD player work out to be about $20. The author is effectively anonymous, so hard to verify, but the DVD 6c fees are listed here and they are only part of the picture, so $20 may be the real deal.
Given that half the cost of the system goes to the patent holders (remind anyone of Microsoft?), it is no wonder that China has licensed On2 Technology's VP6 codec for a reported flat $2 a player for there own hi-def video disc standard.
That should get them out from under the thumb of the big-corp licensing fees at home and lead to a flood of DVD players in the USA that also support VP6. In fact, I wouldn't be surprised if within a year or so we start seeing asian bootleggers who currently do VCDs and SVCDs switch over to bootleg VP6 discs that are higher quality than even any DVD.
Wouldn't that be some global karma for the pigopolists in hollywood? I, for one, am actually rooting for China on this.
When information is power, privacy is freedom.
Yes, they are. This is why they try to squeeze every cent out of everything, leaving us with motherboards with leaking capacitors, harddrives with 1 year MTBF, memory errors, etc. Those of us who run cheap PC hardware, anyway.
Perhaps they're doing that because that's all that people will buy?
It's like floppy disks. I used to buy packs of a hundred real cheap, becuase I knew they went bad all the time. I wondered why no one made good floppy disks anymore. Then I thought to buy the expensive ones.
When people decide they don't care about quality and base their purchases only on price, then the market will give them exactly what they want to buy: cheap crap.
This is a typical byproduct of consumer mentality, and a driving force in the development of features and extensions for products.
Commoditization of computer hardware and electronics drives the price of that hardware down, as manufacturing costs are lowered, technology is improved, investment capital is reclaimed, and competition heats up. The market would not stand to have DVD players always at $300, and it wouldn't make any sense - not everyone would buy them, and the profit margins after initial set-up costs (manufacturing, developing, etc) were recouped would be obscene on a per-unit basis.
The problem is that the manufacturers can't make money on $40 DVD players. This is why DVD players, PDAs, laptops, and any other product inevitably gets cheaper in terms of a cost/benefit standpoint - cost is reduced for the same feature set, but also cost is maintained for an increased feature set. The ability to play MP3s, CD/DVD-+RW, progressive scan, and aesthetics are all improved in order to keep products at the point where the profit margins can be maintained (or even increased, due to improvements in technology and e.g. the offloading of work onto software which can be replaced with better software on the same hardware).
Take a look at the iPod, everyone's favourite example. It started at 5 gigs, then it was 5 and 10, for more, and eventually they moved to the current three-tier setup - low, medium, and high-end. When the lines are updated, the models are effectively bumped. The medium starts selling for the low-end price point, the high-end becomes medium, and a new high-end model with more features (well, more storage) arrives.
In the end, what happens is that the hardware and software used to make these iPods gets cheaper, and once it does, they bump everything down. Apple maintains the same (or similar) profit margins on each iteration, and, rather than thinking of it as lowering the price on a particular model, think of it as increasing the feature set of a particular price point.
This is another important (for the companies) reason for slave labor - it allows profits to stay up that much longer, and allows for higher profits on low-cost items, which is an enabling factor for those people disinclined to spend $300 on a DVD player. This in turn fuels the DVD software market, which I'm sure comes full-circle.
Sheesh, you'd almost think I was an economics major. Too bad I don't know what the hell I'm talking about.
--Dan
Besides most of the time trade restrictions only work on the symptom. Higher salaries are only part of the equation. Like others have said, rising insurance, overburdening govt regulation/restrictions add much to the cost of many items.
I'm not drunk, I just have a speech impediment. And a stomach virus. And an inner ear infection.
Again, since the reporter didn't bother to find out the exact financial condition of these manufacturers, it's almost impossible to know what this number really means. As such, the article is of no value.
Just buy a stack five cheapo DVD players, each coded to a different region. Maybe they could package them all into a single cabinet.
My rights don't need management.
Bus fare simply doesn't raise enough revenue to cover operating costs. Gas tax does raise enough revenue to cover construction and maintenance cost, with some left over to pay for buses.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Laissez-faire economics, globalization, plutocracy. And note that the US doesn't have a perfectly capitalistic economy, which I think is a very good thing.
pb Reply or e-mail; don't vaguely moderate.
Increasingly over the next ten yearts currency won't be as important in international trade as commdoities, especially energy. Soon china will have a large enough domestic market that it won't need US dollars or us as a market, they will only need massive amounts of raw materials and energy sources, which we can't supply much of. Our dollar has been dropping steadily the past several years. that makes our exports cheaper, but we are exporting less, and what we have been exporting is more in the line of factories/machine tools, etc, things to make manufacturing easier to china. They are also heavy into double digits into force-projection styled military buildup, and a buck there goes a lot further than here. A million bucks in china actually gets stuff done, here it forms a few committess to decide if more committes are necessary to study the project at hand. They are also pumping out engineers like we pump out wannabe pro sports starts and musicians.
It's gonna get ugly sometime, and we stand a good chance of losing.
China should take the stick in its own hands - let the manufacturers skip paying the DVD licensing, skip or the region coding bullshit and make players that dont 'officially' play DVDs. And of course not playing DVDs means they dont answer to stupid DRM that tells you what you can play where - sell them to the world, we'll lap them up! either that or just create a better format (not hard).
This comment does not represent the views or opinions of the user.
You wonder if other business, like low-end PCs hardware, are in similar trouble.
If only a $1 per unit margin becomes too much trouble then some of them will drop out of the race. So since they're still in business, it doesn't really appear that this is "trouble".
Let's do a little remedial business math: One dollar on $40.80 is about 2.5%. Don't know about the rest of you but at local banks hereabouts the going interest rate for certificates of deposit runs around 1/2 of 1% and the stock market is down over the last month or so. So making DVD players at a 2.5% return is looking darn good!
... should be on each DVD unit?
Keep in mind this is above what it costs to operate.
This is the old razors vs. blades argument, but Apple seems to be making money reversing the equation: selling songs (software) for near cost while making money on the iPod.
to err is human, to forgive is divine, to forget is... umm...
...is that the technology gets frozen. Nobody wants to invest in developing better players when they have to compete with $40 el cheapo models. We saw this happen to VCRs. In this day of cheap digital electronics, VCR timers can still remember maybe 8 events, with a user interface that has barely advanced in 20 years. And better VCRs are not even on the shelves at mass-market dealers. Now, the same thing is happening to DVD players. It's hard to find a quality DVD player at Best Buy; instead, the shelves are lined with VCR/DVD combos (a stupid idea, but it is an excuse to charge a higher price). Paradoxically, as the price drops at the bottom end, the price for quality units tends to rise, because they become more of a specialty item (a lot of people are willing to pay twice as much for quality or features, but 10 times as much?).
Are you a PC user by any chance? Many PC users seem to be oblivious to the fact that their "cheap" PC's are produced by an industry that is living on borrow time. You ungrateful cheap bastards.
...to portray free market competition as a bad thing.
Mathematics is made of 50 percent formulas, 50 percent proofs, and 50 percent imagination.
Cell phone makers would be jealous since they sell their hardware at a loss. (Granted, they get money from the service subscription.)
They do? Where exactly can I sign up for Nokia, Audiovox, Samsung, or Sony's wireless services?
You have no idea what you're talking about. The service providers buy the phones from the manufacturers (at a healthy profit to the manufacturers, contrary to your absurd claims). The service providers are the ones that turn around and give away the phones, or sell them at a loss, in exchange for service contracts.
Like woodworking? Build your own picture frames.
The owners of the DVD patents have been battling the Chinese makers to extract very high royalties. They have succeeded in harming this industrial sector. Here's one story. This is a great example of how all the value is moving to IP, and what the stakes are in today's IP wars.
Just think - of the $50 purchase price, $27 goes to patent owners and only $1 in profit goes to the factory owners!
I believe that the cost of manufacturing goods will fall close to zero soon. Most economists agree that cost is based solely on human time and or effort. When machines can do all of the labour, prices for manufactured goods will become insignificant.
IMHO, it's best you find creative or service work that cannot possibly be done by a machine, and do it quickly.
Words to men, as air to birds.
Without regulatory reform for US manufacturers the will be no growth in US mfg beyond cyclical spikes along a declining moving average.
Why?
Because anyone who invests their money or time in working for a us MFG or distributor is playing "you bet your future" with every sale.
Manufacturers are one products liability lawsuit away from being uninsurable and out-of-business. They are subject to regular litigation on frivolous patents, employee disputes, state and fed environmental and safety regulations, and now class action lawsuits on behalf of bogus shareholder complaints.
Litigation triage legislation is needed. There should be higher standards for instituting litigation in the US.
Lawyers you heard it here first --- if you want to have clients down the road to defend you need to think long-term and give ground today.
Ahem
While traveling in China recently, I saw an article claiming that each Chinese DVD player includes something like $14 in royalties to the MPEG consortium and other royalty holders. That means LOTS of royalties going to US residents; we benefit from each one of those zillions of imports that would NEVER be made in the USA.
Imagine if Chinese engineers were to come up with a decent replacement for those standards, and consumers had the choice of $79 DVD's or $59 CV's. Hollywood would immediately assume that was another $20 that consumers could spend on content. Why WOULDN'T they release all the content in both formats?
So how do Slashdotters feel about IP being such a big part of the purchase price for a favorite technology? (PS: The work is well underway for an efficient, IP-lite or IP-free format.)
"Inquiring Minds Want to Know!"
Really, profit isn't the point.
The first objective is to create jobs. Especially in a socialist/communist country, it doesn't really matter whether the company makes big profits, it matters that they provide good jobs to the people. So, if the company pays the workers $2 per DVD player more than a US-owned company in China would, and makes a $1 profit per DVD player, then a US-owned company in China making the same DVD player would make three times the profit.
The second point is to build up specialization. Making DVD players takes much more skill and training than making bamboo furniture for export. This encourages Chinese kids to stay in school longer because better jobs are available, which increases the net national education, which leads to more innovation and development.
The third, and most important point, is to take over the world. Take a look at the Chinese currency. China's been making more and more stuff for export, and the US has been importing more and more from China. So, you would expect the Chinese RenMinBi to have increased in value compared to the US dollar over the last decade -- but it didn't, really.
The reason that the RenMinBi has not dramatically increased in value compared to the US dollar is that China has been systematically buying (investing in) US companies with their new US dollars just as fast as those US dollars are coming in from the US. This is called a "balance of trade deficit" for the US. It's not sustainable for China to keep doing this, but very soon the communists will OWN capitalism.
Forget this cold war shit, the best way to beat the capitalist pigs is to play by their rules (internationally), buy them out, and it's working.
Why is this a story? The factory will start making something with a higher margin as soon as they get asked.
This issue is a bit more complicated than you think.
Their margin is a bit over 2%. There are a lot of business doing quite well on that much margin.
500,000 units @ $1 is a half million net. I really doubt that any manufacturer makes only one product line.
what about quality control?? ,new external USB 2. version by Liteon, it wont burn any media,trying to get support by email to tiawan is tedious or not impossible
Iv been having a nightmare with DVD RW
retail cost is $250,so how can margins be so small?
it's easy to make DVD players with only a $1 margin, if your only paying your emplyees 3 cents an hour.
Let's face it kids. The only things America Exports these days is Music, Movies, Weapons, Software, Pharmaceuticals and Fast Food. Frankly if you had to buy DVD Players made in America you'd pay $800 and they'd be big as refrigerators. If you want to earn a living in the USA in an industry that still pays well in America today, either work for one of the ones I listed above or get into something for domestic use like Auto Manufacturing, Construction or Transportation. Americans seem to take for granted that oil should be cheap and cars should be big and jobs should pay union wages. Reality check people. Most of the world doesn't play by those rules and if you want to be a player in the Global Economy you'd best be prepared to take a few lumps and write off the products that you can't compete at.
one hundred million Chinese Dollars - that's why they can live with it...
Oh well, what the hell...
You think a 40.00 (U.S.) printer costs that much to produce? They sell at a loss, to make it up on the cartridges. I have a guy at work who doesn't print a lot, takes him over a year to use up a print cartridge. He buys 29.00 printers where ever he can find them, uses them until the ink runs out, and then gives them away, and buys another one.
"In this way, low margins are a sign of a very efficient world economy. Nothing bad here that I see."
.001% Margins. Now that's efficient. Anything else is just badly bloated.
Naw! When the world's living on
At the turn of the last century, companies in the US employed whole villages. In fact, they built the villages for the people. One problem: there were no worker protections, no OSHA, and barely enough pay to keep the people living in the employer-financed villages. In short, it was slavery, as all of the money paid out in wages went back to the employer in the form of housing and food payments. The reason that we outsource is that while this is no longer allowed in the US, some countries still permit their populations to be enslaved, provided that the proper premiums are paid.
"Because Science" is one step from "Because old book". Try "Because of my experiment testing my falsifiable assertion".
raise prices a buck and you double your profits
The other point to consider is that US$1 is worth a lot in a country where the factory pays the workers about US$25 a month.
Combined with the sheer volumes these manufactures are doing, I would not be surprised if they were doing OK at the end of the day.
The products that make it possible to live are paid for by productive effort. This is not slavery, it's reality.
Contribute to civilization: ari.aynrand.org/donate
Perhaps you should outsource the work done after 4:45 PM Friday.
Contribute to civilization: ari.aynrand.org/donate
Rate of return in any investment drops to the "general rate of return" which is historically some small figure of 1-2% or whatever as soon as competitors enter the market in search of whatever "monopoly profit" existed when the specific market was first created.
So what else is new?
Richard Steven Hack - This sig is TOO GODDAMN SHORT TO DO ANYTHING USEFUL WITH! MORONS!
They were forced to work there by virtue of there being nothing else. They were prevented from leaving by there being no economically feasable way for them to move very far geographically. You've heard of a water-monopoly emipre, yes? The company provided the only source of food, water, and shelter that these people could find. At the wages they were paid, the only option was the company provided system. Even the children of those who lived in these towns were denied the option of bettering themselves; from day 1 the only thing they knew was serfdom under their corporate masters.
"Because Science" is one step from "Because old book". Try "Because of my experiment testing my falsifiable assertion".
No, not really. I've learned to believe nothing in an SEC filing. If they're not claiming that they made $40 billion this quarter, they're claiming that their corporation is really a charity.
BOW to your corporate masters.
Disclaimer: I recently started an insurance company, I guess I'm "The Man" now. I'm going to have to get started with my "Holdin people down" and what not...
I boycott signatures
According to this article, the patent fees can be as high as US$27.45 per unit. (about 20 to 30 percent of their production cost.)
According to this artice, they exported 41 million units in five months... that makes an average of 8.2 million units per month. US$8.2 million isn't that bad of a monthly profit.
The fallout of this is still with us, and even on topic:
I just had to replace the caps in my $35 DVD player's power supply after only 8 months of use.
I expect every player sold last Christmas from the huge pile at the local chain-store outlet has these symptoms: when seeking on a DVD, the TV screen flickers (due to insufficient power), and eventually the player won't read a disk because the power supply is so weak.
Solution: replace the two largest caps with those of the non-bulging variety; now it works great.
How can a $35 DVD player (or anything else) use anything but the cheapest of caps? Do the manufactures know or care that their products are doomed to failure within a year of plugging them in?
Or a better question still, how can I know for sure that a more expensive DVD player uses non-crappy components?
And people wonder why their jobs pay a lot less than they used to ...
the billion dollar profits they keep reporting...
the competition will keep going till these profits shrink to that of other IT sectors..
Nope. China = Zhongguo = the Central Country = the Number 1 Country.
Therefore, any instance of "our" in Slashdot should refer to China and not the US.
Supposedly.
Considering the amuont of bang that can be purchased for a buck a $1 margin is a bigger accomplishment now compared to a few years ago. This is a consequence of Moore's law.
Lower price tags put technology into more homes. The feeling of affordability creates a greater desire to consume. In the long run that should result in a stronger economy.
Know your pads. One time pad: good for cryptography. Two timing pad: where to take your mistress.
Don't forget that every growth percentage is associated with a time period. If it takes one month to make a DVD player that earns you 2.5 % profit, then your annual return is actually 34%. That should be plenty to pay for R&D...
10 years! i'll wait 20!! vhs was good enough for me. they keep making you pay more to switch from one format to the next. my brother wasn't too lucky--2 years ago he spent over $600, that's right, 600 big ones, for a DVD player as a birthday for my father. and right now it's collecting dust in the closet since the first day he gave it. yeah, people are funny falling over themselves for the newest gadgets. :-)
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China is attractive for producers for two reasons. Tne first is that, at least for now, labor is much cheaper there than elsewhere. But a company forever chasing the cheapest labor will find problems. As more investors move in, the price of skilled labor rises.
Secondly, and more important than labor costs, is that China presents new markets and new opportunities.
You're right that the country is not now the world's powerhouse in consumption, but it certainly has the potential to be.
Business is not attracted by temporarily cheap labor, but by a market of over 1 billion people.
It's well known that Bollywood already produces more films per year than Hollywood. I've never seen any statistics on this, but I would bet that in terms of PPP (puchasing power parity) Bollywood is more successful.
We in America seem to forget how recent our industrial revolution was, and how greatly it changed the lives of people who lived here.
When people have a bit of disposable cash, they spend it. And like it or not, there are four times the number of people in China as here, and many of them are finding themselves with a bit of cash, and many of them want things like TVs and DVDs and cars. And as things stand, there won't be many people in Beijing (or Jakarta or Mumbai) selling Zeniths, RCAs or Fords.
The goal isn't in making things half-way around the world to sell in Chicago, but creating new markets to sell things locally.
Even at a $1 margin, I'd much rather sell to a billion Chinese and another billion Indians than to 300 million whiney Americans.
Corporations aren't evil; they're amoral. They're not out to poison the environment and enslave people economically; they simply don't care if that's the side effect. Just as long as they're "maximizing shareholder value", everything is fine. :)
This is absolutely positively right. I did not clarify my point well enough, but you did. Thanks a lot, and I sure hope your post gets modded up.
--- Grow a pair, liberals... stop letting the Republicans bully you!
However, it is good for the people who get jobs because of it.
This must be tempered, however, with proper environmental and labour laws in whatever country the jobs happen to be in.
Denied from leaving the company town? Yes, because odds are you had a running tab with the company, and you were always perpetually in some amount of debt.
You were in the middle of nowhere, and the company owned the means of transportation into and out of the town. You may have arrived willingly, but there was no way to leave and survive. Trying to establish your own free enterprise was met with harshly by the people running the town.
Everything you used you paid the company back for (hint: sounds like the recording industry).
It's kind of well-documented.
Well, there was an issue of National Geography that talked about current slavery. Most of it is in the sex trade.
or look at life in Mexico being a worker vs being a land owner or business owner.
They do not import and are more less self sufficent, everybody is employed. ...and, in CUba, you can smoke hand-rolled cigars all day! And drive a '55 Chevy (if you can afford it and the gas).
Cuba also has no "crime", because the fear and incentives for your neighbor to turn you in for anything (real or imagined) is very very real.
The USSR took all the land and product away from the farmers, also, so that there was no incentive for them to do anything, least of all for themselves.
If yow own your farm property, the incentive to keep your fields and crops in good shape is slightly higher than if you're just a sharecropper, er, working the farm for someone else for a fixed wage.
How happy would you be if you were encouraged to drive the cultivator out so that the crop owner might get the extra money, but your only incentive is to do it to keep your job? It's different if it's your own crop.
Oh well, you either get and understand this motivation, or you don't.
That's actually an interesting and underrecognized aspect of the "Internet econonmy".
At one point, techies were subsidized by others -- if you knew how to crack a piece of software or use IRC or something, then your goods were paid for by others.
As tools to pirate software and content are made easier and easier to use and distributed, this ceases to be the case -- *everyone* can pirate content. Which eliminates the value of being a techie.
May we never see th
Nope.
Actually, the insistance on translating Zhong Gua as Middle Kingdom is nothing but an example of what Edward Said called Orientalism, the desire to objectify the East in inscrutible terms, which is just a symptom of racism.
In fact, it would be quite reasonable to translate Zhong Gua simply as Empire or Nation. This doesn't create the basis for a curious racist algebra like that in the above post however so it is not the privileged translation among such fools. Nonthless, it is no more than a racist mythology.
$1 profit margins are great, if you sell 50-60 million DVD players.
PS2 did not have profit margins and its now making Sony some money.
People don't exist to serve systems, systems exist to serve people.
No wonder high tech stocks are so terrible. FREE HARDWAREs and FREE softwares. so when is free service going to be next? :-)
Im sorry, I wasnt aware I needed to prove the obvious. US department of labour good enough for you?
p orts/futurework/report/chapter4/main.htm
... I think commodization and consolidation will accelerate). So most of us will have to be employed in service jobs ... a new age of servitude, not the end of civilization.
http://www.dol.gov/asp/programs/history/herman/re
I wasnt predicting the demise of the human race, I was predicting an ever decreasing percentage of manufacturing jobs (R&D too IMO
especially because $1US is a SHITLOAD of money in China...
Net Margin != Return on Capital
This I know from first-hand information, as I am doing business with China (living in Hong Kong). The problem China has is the over capacity: the buyers (American buyers are considered worse in that) always demand lower prices, and simply shop around factories who can make their DVD players cheapest. Mind that 90% of the production is OEM production; most factories do not sell their own products, let alone they have their own brand. Those things are separate in China.
This problem is not only in electronics (where the margins are not even that bad), it is worse in the garment sector. But basically all manufacturing in China suffers under their own enormous capacity. There is so much production capacity, that buyers can shop for who can be cheapest, instead of that they have to source for who has capacity available to make their products. That results in killing competition, rock bottom prices, and also of course underpayment and exploitation of workers. A situation not likely to change. Something to remember when you see "made in China", as it does not only accounts for DVD players.
Wouter.
Repeat after me:
"The long run economic profit of any perfectly competitive business is zero."
There. Now that we've reminded ourselves of one of the many reasons that economics is called "the dismal science", the fact that they're making $1 on each unit seems like a good idea for everyone involved.
WARNING: there is a trojan on your
Is awsome. Can I use it on another forum? If so, who should I put it as being from (if anybody)?
Could you post a reference for the claim that non-labor costs as a percentage of total always go up or remain the same? I'll accept a loose definition of "never" = "rarely" as I'm not try to nit pick about rare exceptions.
It seems to me that materials costs are more likely to drop as suppliers compete with each other and the market gradually selects more efficient suppliers.
As far as China goes, I'll give the viewpoint of a US citizen living in China. The cost of food, clothing and shelter is about 4-8X lower than it is in the US. Cars and consumer electronics seem to cost maybe 10% more here than in the US (I believe there is a ~20% tariff on imported computer parts, including the TFT's in flat panels).
My limited exposure to the local software engineers suggests that they live perhaps a bit better than US college students on the ~$6/hour that they make, which I'm told is taxed only around 10%. I think their standard of living might be equivalent to earning $22/hour ($44k/year) in the US. Chinese engineers often own their own cars, but their cars are crappy, and there might be only one car shared between husband and wife, both of whom usually have paying jobs. They seem to buy clothes more often, but they tolerate more synthetic fibers in their wardrobes (someone told me that 70% of all textile production is now in China; don't know it's true). The Chinese engeineers I've met seem to own their share of consumer electronic gadgets, home entertainment and computer hardware, but it's usually what American nerds were playing with 18 months ago, which means that it costs about a third as much. On the other hand, it's a lot more common (and at least 10X cheaper) in China to hire domestic help. So, perhaps US engineers might spend more time doing domestic chores than their Chinese counterparts. I understand that most Chinese white collar workers put some money aside for savings, and do not carry consumer debt, but they do take out bank mortgages to buy homes (there are a lot of nice cheap new condos here), and the banks lend using essentially the same formulas used in the US: 10-20% down, payments should not exceed 30% of salary, etc.
I hear similar accounts about life in India and some Latin American countries. There are enough differences between any two countries that I doubt one could conclusively prove the reasons for the radical cost differences, but I believe most of the answer is probably that the costs of the minimum wage and litigation in the US is enormous. It is amazing to me how many jobs and businesses exist in China that could not profitably exist in the US because of liability and minimum wage laws, from the street vendors repairing bicycles or selling food on the street to a field of 40+ construction cranes rapidly erecting buildings with what appear to be two or three separate shifts of work crews.
I'm not saying the China (or any other country) is some kind of Utopia. I read somewhere that the total number of manufacturing jobs in China dropped 15% over the last n years (5 years?), due primarily to automation, and there is a lot of question about the quality of the loans that the banks are making: i.e., if there is a big recession, could there be a debt collapse like in Japan? Also, the last time I checked the Chinese constitution, it gave the cities 4X more voting power in the legislature than the countryside (amended down from 8X a decade or two ago), so it would not surprise me if some money was being funnelled from the 1 billion people in the countryside to the ~150 million people in the cities.
I feel I should offer some kind of suggestion in conclusion. I guess, if I had my druthers, I'd make two changes to the US economic system: (1) eliminate the minimum wage while adjusting welfare to ensure that it is always more profitable to be underemployed than unemployed, (2) make punitive litigation damanges go to the government, not to the plaintiff.
When competition is based solely on price, quality becomes a virtual non-issue. Ever had a stick of RAM (let alone, heaven forbid, a HD) fail 3 months after you bought it? Sure, you might get an exchange at the store (if you bothered to keep the receipt) but your inconvenience and possible lost work means you lost something - because quality is not an issue to the manufacturer, as long as the units function going out the factory door.
Sadly, "branded" hardware seems to be equally shiatty in a lot of cases, but they have marginally more interest in QA because you'll remember "yeah, my Acme mobo cacked out the night before my big stats project was due, boy Acme sure do suck!"
Freedom: "I won't!"
Correct me if I am wrong, but hasn't it always been this way.
What i mean is this, it is normally the one how gets to market first that milks a product for all it is worth (think DVD players 5-6 years ago). The Guys that come late and copy/purchase this idea normally only make profit buy making it cheaply and selling large numbers of the item.
It said "windows 98 or better" so I installed Linux
Who in the heck buys these cheap POS players? I sure as heck would never own one, or give one as a gift. "Here ya go pal; your friendship doesn't mean enough to me to warrant spending a few more bucks on a name brand player".
"I'm not a cool person in real life, but I play one on the Internet". Galley
First, intersting post, thx. As for the reference, the last place I read about it was Managing for the Future a collection of articles and essays by Peter Drucker written around 1990.
Your guess that material costs go down is correct. Despite the increasing shortage of raw materials, prices for most of them went down in the second half of the 20th century. But what happened with wages was different - the amount of direct labour needed per 1$ of output decreased (actually the amount of raw materials used decreased too).
The rest of the costs are capital and knowledge. Some products, such as Intel processors, are almost 99% capital and knowledge. It's almost completely irrelevant to them what the labour costs are. Car manufacturers, such as Toyota, may have direct labour costs as low as 10% of total. In other indistries it varies, but according to Drucker, overall trend was a decrease.
Of course, the capital (machines, robots, etc.) had to be produced at some point and direct labour was used there too, but a particular company doesn't need to care about it - and the multiplicator effect ensures that labour can continue to become less relevant (Will Smith would call it using machines to make machines).
Future Wiki -- If you don't think about the future, you cannot have one.
Easy there chief, Methinks you need to read this How-To: http://tldp.org/HOWTO/Encourage-Women-Linux-HOWTO/ index.html
There are several purposes for this pegging, with the main one -- prevention of capital flight, and plundering of the country by foreign "investors". Chinese government had enough sense not to repeat the mistake of the former Soviet block countries who have turned their entire populations into beggars and prostitutes.