When there’s new hardware out, chances are market research firm iSuppli will buy it and take it apart. A new report (not available online) from them sheds some light on the just-beginning next-generation optical disc format wars. So far, there are a mere handful of HD DVD players on the market, priced starting at US$500 each, while Samsung plans to launch the first Blu-ray player on Sunday for about US$1,000. That stacks up to a sizable cost advantage for HD DVD players, one its backers hope will give it an initial edge in the battle with Blu-ray.
But are HD DVD players just cheaper to make? Or are manufacturers willing to take hit on each player sold if it buys them an advantage in the format war? A teardown of the Toshiba HD-A1 HD DVD player indicates that it’s the latter.
iSuppli teardown manager Andrew Rassweiler describes the HD-A1 as a "combination of a low-end PC and a high-end DVD player." A Pentium 4 CPU accounts for the low-end PC label. The Intel processor is joined by a high-definition video decoder from Broadcom and four other digital signal processors. It also contains 1GB of RAM, a 256MB flash drive, and another 32Mb of flash memory. Add the CPU, memory, and other processors together and then combine those costs with the rest of the integrated circuits and you are looking at US$366 of the US$499 retail price tag right there.
The optical drive at the heart of the HD-A1 is estimated to cost US$200, and the other components add roughly another US$107 to the total, for an estimated component cost of US$674. Add manufacturing costs, cables, a remote control, and packaging, and the price is easily pushed past the US$700 barrier.
Hardware subsidies are nothing new when it comes to video game consoles, where the PlayStation 3 will be taking a hit of anywhere from US$200-300 hit per system, depending on whom you ask. Microsoft also takes a substantial loss with each Xbox 360 sold. In contrast, taking a loss of this magnitude in the consumer electronics market is much more rare.
Whether Toshiba’s apparent loss-leader strategy translates into an early advantage for HD DVD remains to be seen. With most consumers expected to sit on the sidelines during the early stages of the format war, there won’t be a winner for some time. Price-conscious consumers and bleeding-edge consumer electronics adopters do not tend to move in the same circles, which means that those who decide to take a plunge in the next-gen waters will be doing so based on factors other than price. That may not bode so well for the Toshiba HD-A1, which doesn’t offer 1080p like the more-expensive HD-XA1, or for Toshiba’s loss-leader strategy in general.