Toshiba ‘taking loss on initial HD-DVD players’

Paul Boughton

Is Toshiba Corp hoping to buy a head start in the battle for the next generation of DVD technology? The answer is yes, according to the market research firm iSuppli Corp, which recently dissected Toshiba’s new HD-A1 HD-DVD player and priced all of its components.

According to iSuppli’s teardown analysis, bill-of-materials (BOM) costs alone for the HD-A1 exceed its $499 US retail price.

The HD-A1’s estimated $674 BOM figure excludes costs for manufacturing, testing, cables, remote control and packaging. Those additional costs could easily push the total cost of the HD-A1 to more than $700 per unit.

The finding suggests that Toshiba is subsidising the HD-A1 in an attempt to gain early market share over players that use the rival Blu-ray high-definition DVD standard. Initial Blu-ray players are scheduled for launch by Samsung Electronics Co Ltd, Sony Corp and others this summer. These products will have retail prices starting at $999.

Like many early models, the HD-A1 does not have an especially efficient design.

“The Toshiba HD-A1 is basically a combination of a low-end PC and a high-end DVD player,” noted Andrew Rassweiler, teardown services manager and senior analyst for iSuppli.

Moreover, the HD-A1 utilises a general-purpose microprocessor instead of more cost-effective Application Specific Standard Product (ASSP) semiconductors typically used in consumer-electronics products. The HD-A1 employs an Intel Corp. Pentium 4 as the main microprocessor, as well as Broadcom Corp.’s BCM7411 for High-Definition (HD) video decoding and four ADSP-2126x SHARC programmable Digital Signal Processors (DSPs) from Analog Devices Inc.
The total estimated cost of these semiconductors is $137.

The HD-A1 also uses $125 worth of memory, including a 1Gbyte Dual Inline Memory Module (DIMM) from Hynix Semiconductor Inc., three other types of DRAM, a 256Mbyte flash memory disk from M-Systems and 32Mbytes of MirrorBit flash memory from Spansion.

Adding in other chips brings the total Integrated Circuit (IC) cost of the HD-A1 to about $247 per unit

“It’s unusual to find this level of subsidisation outside of the video-game console and mobile-phone markets,” explained Chris Crotty, senior analyst, consumer electronics at iSuppli. “Presumably, Toshiba anticipates making back any initial HD-A1 losses with subsequent products. There is little question that Toshiba had to use a high-cost design for its first model. But there is a big question as to whether pricing its player so much less than Blu-ray is worth the financial risk,” Crotty added.

Reviews of the HD-A1 have been mixed, and the unit lacks the full 1080p resolution available in the competing Blu-ray models as well as in Toshiba’s own $799 HD-XA1 version of the player. Toshiba is hoping to build a lead over its Blu-ray rivals, some of which have recently announced further product launch delays.

What’s at stake is leadership in the market for next-generation, high-definition DVD equipment. Next-generation equipment is one of the few remaining growth segments in an otherwise peaking DVD market, which is facing increasing competition from alternative content-delivery mechanisms, including video-on-demand, Internet downloading and even Disney’s resurrected MovieBeam service.

iSuppli forecasts that factory shipments of all next generation DVD equipment—both HD-DVD and Blu-ray—will soar to 65 million units in 2010, up from 1.6 million units in 2006. But unlike other industry experts, iSuppli’s Crotty doesn’t foresee a clear winner in the battle between HD-DVD and Blu-ray.

“This is not a repeat of VHS vs Beta,” Crotty said. “The market dynamics are very different. The most likely outcome is stalemate, with the savvy manufacturers introducing dual-format players as early as the 2006 holiday season.”

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