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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."
Cell phone manufacturers (Nokia, SonyEricsson, Sagem, etc) actually make a nice healthy profit on the phones. Its the telco companies that then pass the phones on to the customers at a loss.. which they make back easily on the users that send 1000 text messages a month..
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Clothing, consumer appliances, power tools, any sort of plastic or metal manufacturing, furniture, etc.
Heck, the hardwood futon I bought 4 years ago was made in china - the store said that local manufacturers just couldn't compete with the lower wages paid there. As a result, there was nearly a $200 difference in final price for a product that was approximately the same design and quality.
"Nothing strengthens authority so much as silence." - Charles de Gaulle
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
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
I flubbed the link, here is the correct one:
l /main587049.shtml
http://www.cbsnews.com/stories/2003/12/05/nationa
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
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.