DVD-ROM Prices Falling Fast
(09/12/97; 4:30 p.m. EDT)
By Mark Hachman, Electronic Buyers News
Hoping to compensate for product delays and sluggish sales, makers of
DVD-ROM drives have begun offering the parts at prices at or below the
manufacturing cost, analysts and industry executives said.
While none of the companies will admit to selling drives at a loss, analysts
said prices have fallen far faster than expected. Instead of the $325 to $250
per drive many had forecast, some vendors are pushing them out the door
for as little as $100, a markdown not anticipated until mid-1998.
Because the industry took so long to overcome the roadblocks of content-
scrambling licenses and to persuade Hollywood to develop content, "the
thinking is that some drive makers are desperate to unload inventory," said
Mary Bourdon, optical storage analyst for Dataquest Inc., San Jose. "From
a content standpoint, there's no compelling reason to switch to DVD."
Like CD-ROM drives, DVD-ROM drives were originally introduced at the
same speed grades as commercial CD or DVD players. These 1X DVD
drives have already begun to give way to higher-margin 2X drives, offering
about twice the performance.
Yet the GD-2000 2X DVD-ROM drive from Hitachi America Ltd.'s
Storage Products Group is being sold to OEMs at "less than $200," said
Werner Glinka, director of marketing for Hitachi, Brisbane, Calif. Although
Glinka said Hitachi is making money on the drive, he declined to reveal the
company's profit margin. Analysts and industry executives say they are
hearing anecdotal reports of older 1X drives being sold for $100 to $150 -
an amount that not only approaches the material cost of the device, but also
that of the mass-market CD-ROM.
"The key issue is how DVD-ROM-drive and CD-ROM-drive pricing
compares," said Ray Freeman, president of Freeman Associates Inc., a
Santa Barbara, Calif.-based market research firm. "As they near parity,
that's when you'll see the crossover occur."
OEM prices for 8X CD-ROM drives now range from $67 to $101, and
are forecast to give way to 10X drives selling for a high of $92 in 1998,
Freeman Associates said. DVD-ROM drives at 1X speeds play
CD-ROMs at speeds comparable to 8X CD-ROM drives.
"We've heard reports of DVD-ROM drives being offered to our customers
at volume prices around $100," said Jim McCaffrey, vice president of sales
and marketing at Mitsumi Electronics Corp., Irving, Texas.
Mitsumi will continue manufacturing high-end CD-ROM drives and enter
the DVD-ROM market in the second quarter of 1998. "Pricing is exactly
the reason why we're not entering the market until then," McCaffrey said.
"We made an effort to be one of the first into the ATAPI/IDE CD-ROM
market, and we still have the scars to prove it."
Hitachi also delayed entry until the 2X generation partly because of
difficulties securing a CSS license, pricing competition, and a slight
manufacturing delay, Glinka said.
By contrast, Toshiba America Information Systems Inc. (TAIS), Irvine,
Calif., managed to secure higher margins by entering the 1X DVD-ROM
drive market early, and now has several existing OEM contracts in the
mid-$100 range, said Maciek Brzski, director of the Optical Business Unit
at TAIS.
"Understand that we're in the midst of a product transition from
[first-generation] to [second-generation] DVD drives," Brzski said. "Both
generations were introduced at OEM pricing of about $200 and declined
over time."
The bill of materials for a DVD-ROM drive is approximately $100,
according to Dale Ford, semiconductor applications analyst for Dataquest.
"If true, then the pricing reports that we've heard do substantiate the claim
that drives are being sold at about cost," he said.
But TAIS' Brzski said, "We've heard a lot of reports, and a lot of the prices
we've been hearing are what OEMs would like to pay."
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How do you think these prices bode for Cube's "second generation" DVD P's and revenuies? |
