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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."
Also, of course, it eventually allows the Chinese companies to gain a foothold in the US market, under their own names. That's how most Japanese and later the South Korean electronics firms slowly made a name for themselves and their countries in the US market.
First, they start by selling low-end stuff, usually under another manufacturer's brand, and often justifiably branded as crap. But they're cheap, and consumers don't care about quality, just price, so they buy them in droves.
Then, slowly move up the market towards the higher end once your distribution and manufacturing experience is honed, and you have more budget for R&D.
Now, China is posed to follow after Japan and South Korea's footsteps now. Already, you're strating to see Chinese brands marketed under their own names in the US, like Konka and Haier. It shows no signs of stopping.
There's 10 types of people in this world, those who understand binary and those who don't.
It is interesting how this works. GM just announced the "World Engine". Essentially, they will be manufacturing the parts in outsourced countries all over the world, shipping them back to the US, and doing final assembly here. Scary to think that it is more cost effective to ship parts thousands of miles from dozens of suppliers than to make them at home. Even then, GM's margin on autos is razor thin.
Perhaps we should start looking at why it is so expensive to manufacture here instead of gnashing our teeth about jobs going overseas.
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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.
Well that is good news, because all of those unemployed people can get jobs making even more things efficiently and we can have more choice and variety. There is no shortage of things to discover, invent or build.
Efficiency isn't a bad thing in itself, it actually leans more to the good side of things. What is bad is when the upper strata of society dominates the gains from our newfound technological wonders and keeps the standard of living for everyone else in a different ballpark to theirs.
When it only takes 10 workers to make something where it used to take 1000, those 10 workers should be well paid and have decent benefits.
Liberty.
The labor is much cheaper but a lot of other expenses make up much of the difference. Despite Mexican wages being 10% that of US workers, a $500 US refrigerator still costs about $470 when made in Mexico.
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.
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.
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!