Slashdot Mirror
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.
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.
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.
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.
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.
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.
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 $50?
Fair is defined as a level playing field. If we are playing a game of soccer, and your team cheats, the match was not fair. If no one cheats, it is a fair match. It is not required that our teams like each other: it's quite possible to play a fair match against someone you absolutely despise.
Fair competition is the same. If a government is heavily subsidizing a company, that's not fair competition. If a group of companies is colluding to drive a competitor out of business, that's not fair competition. If lots of people are making the same thing, thereby driving down prices, that's fair competition.
What you seem to be looking for is no competition, wherein either a government or cartel sets prices, rather than the market. That has nothing to do with fair competition, and is really about the exact opposite.
10 PRINT CHR$(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
There's a lot of clothing being made in Los Angeles. In the area where I grew up every available space seems to be housing a garment maker. It's very, very low pay, they cheat the workers, etc. My friend worked for an agency that essentially crashed these places looking for abuses. They always found them. I guess the question is, what's the point? even by cheating workers they're still paying fifty times for for thw labor than they would in China. I think these are small-rrun operations, where they just can't wait for the turnaround time in getting them made in China.
``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.
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.
Already, you're strating to see Chinese brands marketed under their own names in the US, like Konka and Haier.
You mean I won't be able to buy a TV from Magnetbox, Panaphonic, or Sorny anymore?
Does it make you happy you're so strange?
Nope... so far I'm quite pleased with the products from China.
If construction was anything like programming, an incorrectly fitted lock would bring down the entire building...
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 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.
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.
... 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.
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.
Nice vague comment, with nothing to back it up. There is higher demand for home computers than 25 years ago. Same for DVD players, MPG players, music CDs, etc. You know why? They didn't exist.
You can't judge future demand for products that do not exist yet. That is the point. Once again, the "glass is half empty" crowd predicts the demise of the human race because of terrible, horrible, job threatening productivity.
My guess is that had you lived 100 years ago, you would have been anti-refrigeration, since it means the end of the ice block industry. This would ignore, of course, how it increased the average lifespan more than any other product ever invented.
Tequila: It's not just for breakfast anymore!
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.
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...
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!
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.