HD DVD losses false, unification makes sense says Toshiba exec

Ilya

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From iTWire:

HD DVD losses false, unification makes sense says Toshiba exec
By Stan Beer
Friday, 30 June 2006

Reports that Toshiba is selling its HD-A1 high definition video player below cost are false, according to a senior executive from the company. What’s more, the executive claims Toshiba is still firmly committed to the view that HD DVD technology will prevail over Sony backed Blu-ray, despite suggestions that the company is wavering.

Earlier this week, technology analysts estimated that the HD-1, Toshiba’s first HD DVD player, costs about US$700 to produce, suggesting the retail price of $499 is $200 below cost and thus unsustainable. In addition, a speech by Toshiba’s president Atsutoshi Nichida called for the unification of the two competing formats were seen by some as indications that the company is wavering in its commitment to the HD DVD format.

Mark Whittard, general manager of Toshiba Information Systems Division in Australia, says that Toshiba is making a profit on sales of the HD-A1 and is still firmly committed to the HD DVD platform.

“My understanding is that the price is set to make a profit. We’re not in business to lose money,” says Whittard. “The audiovisual market is tough enough without reducing your prices to an unprofitable position when there’s no competition at the moment. The direction from Tokyo is that we have to make a profit.

“The only time when Toshiba ever sells technology at a loss is in a competitive environment where we have to and it’s a necessity. Then we work aggressively to find a way to reduce the cost and be more competitive. I could not understand a business position where they would be pricing HD DVD players in the market and selling them at a loss when there’s no competition. I know Toshiba and that’s not how we do business.”

So how will Toshiba compete with PS3 players equipped with Blu-ray players which sell below cost but are able to recoup losses on games sales?

“I imagine that we would stitch up relationships with most of the motion picture movie companies and package it up that way,” says Whittard. “Also there will be a lot of third party companies that will rebadge HD DVD and bring it to market. That’s how we made money on DVD which we invented. We still make a royalty on every DVD player in the market today.”

According to Whittard, recent statements by president Nichida calling for unification of the two competing high definition technologies are not signs that company has weakened its commitment to HD DVD.

“Internally that’s not how it is viewed,” Whittard says. “It’s just good common sense. Whenever there are two competing technologies in the marketplace, in the end it just confuses the market so you can’t maximise on the opportunity from the business. There is a lot of debate as to whether there is room for two formats in the market or whether it really does have to consolidate to one.”

But what does consolidation actually mean?

“Toshiba believes that HD DVD format is the strongest overall package for everyone in the marketplace but there are some good technology strengths on the Blu-ray side as well,” says Whittard. “If you look at it from Sony’s perspective, Blu-ray is a very important piece of technology. However, Sony may not have any choice if HD DVD gets traction and momentum in the marketplace and there’re a number of reasons why we think it will.

“I think some of the things that are really driving HD DVD in a lot of these format war discussions are the fact that Intel has said that it supports HD DVD, believes that it’s going to be the format of choice and supports it in the Viiv platform going forward. Microsoft has also committed to supporting it natively in Vista and Xbox. Even HP has done a back flip back in December and supported HD DVD because it expects the cost of Blu-ray to be unreasonable. They’re three very big IT players. Also, most of the motion picture companies who initially supported Blu-ray now have a foot in both camps.”
 
navychop

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Let's see- industry experts knowledgeable about costs have taken apart the Toshiba. They have come up with a manufacturing estimate that clearly shows Toshiba is losing money on every machine. This reverse engineering is common, and the results are based on facts, not marketing.

So we've pretty well established that this "senior Toshiba executive" is lying. Then why should we believe his next statement, that he believes that HD-DVD will prevail over Blu-Ray? He goes on to dispute the idea that they would sell at a loss. Isn't that how Japanese companies have historically taken over a market? And then he pretends there is no competition, while mentioning the competition. Many times products on the market have had to compete with upcoming products. IBM made a fortune exploiting this approach. He knows the early adopters will not determine the winner. The mass market will, and the mass market won't be buying in large numbers until the year end holiday season. And it's clear he has some apprehension about PS3.

But his reference to consolidating into one format is certainly something we all can support. But that train has probably left the station.

Yep, some companies have hedged their bets. It'll be an interesting year, especially since it appears the baloney company has flubbed their initial entry.
 
teamerickson

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navychop said:
Let's see- industry experts knowledgeable about costs have taken apart the Toshiba. They have come up with a manufacturing estimate that clearly shows Toshiba is losing money on every machine. This reverse engineering is common, and the results are based on facts, not marketing.

So we've pretty well established that this "senior Toshiba executive" is lying.
I don't know. Do the industry experts know all the discounts (quanity, time and commitment) Toshiba is recieving? So, the industry insiders are assuming, and I'm sure they have a good idea. What is not assumption is Toshiba must report (quartley) to the SEC it's financial reports. Toshiba executives are legaly tied to this report. They can go to jail if proven to give false reports to the SEC and investors. So why tell people your making a profit (and risk going to jail) if your not? That could mislead the public. This is just one product that gets intertwined in the earnings report. I just don't think he would knowingly lie with what is at stake.

Does my bias show? :)
 
navychop

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Yes, the industry experts would no doubt have a good feel for discounts. And as you say, this is one product among many. They no doubt are making a profit as a whole, and that is what is covered in the financial statements. Not sure how much must be reported to the SEC anyway- they are a Japanese based company- but I guess they're traded on the NYSE.
 
Ilya

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To tell the truth, I don't understand why there is so much noise about whether Toshiba is losing or making money on the first players. Even if they are losing money, we are talking about perhaps several million dollars so far, right? That's a very small investment if you are trying to set an industry standard and secure royalties for many years to come in a multi-billion dollar market. :D
 
mike123abc

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Toshiba does not have to report to the SEC what they make/lose on the player. They can lump it in a division that makes profit elsewhere and not show the loss at all. They use a really old processor, perhaps Intel is dumping them. Perhaps some of the parts they were contracted to buy for other things like notebook computers and had surplus which they put in the player.

Also they could be "making" money on the player because they are counting X amount of $$ in media revenues/player sold.

There are so many ways to play around with the numbers they could make almost any statement they wanted. I suspect that they are getting a very good discount on some stuff and only selling at a small loss which they offset from royalties from other things associated with the player to make the division or group profitable.
 
vurbano

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navychop said:
So we've pretty well established that this "senior Toshiba executive" is lying.
Sorry but no one knows what Toshiba pays for the parts.
 
navychop

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I'll go by published reports by industry experts, rather than SWAGs.
 
vurbano

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navychop said:
I'll go by published reports by industry experts, rather than SWAGs.
Ill go by company's representatives statement. The scientific wild ass guess is what is coming from iSuppi, they get some data and make a guess :rolleyes:
 
Bruce

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Considering what company's representatives says to the public could affect stock prices and open them up to lawsuits if they make a false statement, I would have to believe them.

And someone else posted this before, if I could buy a Dell Computer with this much stuff ( look below ) for $449.00, there is no reason that they( Toshiba) are not making a profit on the A1-
Dimension E310 Media Center PC
Intel® Pentium® 4 Processor 521 w/HT Technology (2.8GHz,800FSB)
Genuine Windows® XP Home Edition
512MB Dual Channel DDR2 SDRAM at 533MHz -2 DIMMs
80GB ^ Serial ATA 3Gb/s Hard Drive (7200RPM) w/ 8MB cache
Single Drive: 48x CD-RW / DVD-ROM Combo Drive
Includes 17" FP upgrade
FREE Shipping & Handling!
 
navychop

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Sit down. Take a deep breath.

Dell DOES NOT manufacture that PC for less than the price you paid. Dell, and other manufacturers, get paid by software companies to put their adware- er, "software" on that computer they sell you. THAT is how we can buy PCs so cheap.

Why do you think there's so much junk on PCs you buy?
 
Ilya

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navychop said:
Dell, and other manufacturers, get paid by software companies to put their adware- er, "software" on that computer they sell you.
Which brings an interesting thought: ;)

What if Toshiba sells the player bellow its cost, but makes up in some kick-backs from, say, Microsoft or studios to push the format?
In that case, they would be technically making profit on each sale even if selling bellow the cost! :D
 
vurbano

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Maybe Blu Ray should just match the PQ of HD DVD and lower the price to 500 bucks. To date they are charging 500 dollars more for an inferior picture.
 

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