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."

Comments

I'm serious this time

[Ass, Ltd. Ho!]

Actually, cell phone manufacturers are in as much trouble as these Chinese DVD player manufacturers.

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.