DVD profits 'less than £1'

Commoditisation 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 (£22.19), leaving merely $1 in profit margins for the manufacturers.

The province accounts for 84.2 percent of China's exports of DVD players and exported 34.5 million of the players during the January to May period.

China is no slouch when it comes to making DVD players. More than 80 percent of the chipsets for making DVD players that got produced worldwide in the first half of the year were shipped to China, where they were incorporated into DVD players that will eventually get sold under a wide variety of brand names.

"Without possessing core technologies, these DVD player manufacturers can earn only limited processing and assembly fees, and they must pay royalty fees to the holders of intellectual property," analyst Byron Wu wrote in a report on Monday. "The best scenario for the DVD player sector is an acceleration of the consolidation process, with larger firms taking over smaller shops."

Thirty Chinese DVD player makers declared bankruptcy in the first half of the year, Wu noted.

Technology products typically endure steep price declines as popularity grows because of the pervasiveness of standardisation. The declines in DVD player prices, however, have been particularly severe, analysts have noted. Despite the difficulty of the market, it has paved the way for the emergence of companies such as Apex.

DVD players have also served as a vehicle for Chinese manufacturers, which traditionally serve as contract manufacturers, to sell products under their own brand names in Europe and North America.

Some manufacturers, including Jiangsu Shinco Electronic Group, have diversified into slightly higher-margin categories, such as portable DVD players.

Despite the difficulty in eking out a profit, the popularity of players remains unabated. Shipments in 2004 should increase to 110 million units, according to Wu, up from 90 million in 2003.