Why has the bottom dropped out of the CD-Rom drive market? Grey market activity, price slashing, dealers and distributors losing money hand-over-fist have all played a part in the picture which has sent drive prices plummeting.
In the case of a four-speed CD-Rom drive, the buying price for distributors may currently drop as low as #30, with the phenomenon set to replicate for six-speed drives over the next few months.
There isn't, it seems, one single, clear reason for the price decline and uncertainty in the storage market generally, and the CD-Rom market particularly. Kieran Sumner, high business media manager for drive manufacturer Goldstar, said: 'The market is extremely volatile because quite a number of people are selling purely on price.' One disgruntled distributor told PC Dealer that companies like Goldstar were to blame for this phenomenon, a claim which Sumner dismissed out of hand. 'To say we are responsible is laughable,' he said. Fierce competition between Far Eastern manufacturers was one of the chief reasons.
Although he refused to name any names, Sumner said that some of his Asian competitors had jumped the gun on the release of six-speed drives and that this had forced Goldstar to drop prices even before the goods had hit the UK market.
It's a cutthroat business - a fact which has directly influenced Goldstar's attitude. Sumner said that the company had taken an aggressive stance, taken on more distributors, and tightened up its pricing. 'We've been forced to compete much more aggressively with a number of companies. One major Japanese manufacturer was sitting on 1.5 million CD-Roms.' But worse even than this, Sumner said, was that Gold-star in the UK had to compete not only with other manufacturers of CD-Rom drives but also with grey market Goldstar kit from Europe, the Far East, the US and Canada.
While distributors acknowledge there is plenty of grey market activity, some take a different view to the reasons for the cuts. James Wickes, managing director of Ideal Hardware, said there are several factors causing the problem. Not only was there the expected sales of multimedia PCs over the Christmas period, but imports of drives from Germany had forced prices down.
'In terms of market stability, we won't see it until four-speed and six-speed have pushed through the market. Eight-speed drives will probably be around for about six months, and that will produce more stability,' said Ed Bateman, CD buyer at Ideal.
Alex Campbell, marketing manager at Osmosis, said six-speed drives are likely to have a short shelf life, even though they've only been on the market for the last month or so. 'I know that some manufacturers have far too much stock. We are currently taking back-to-back orders,' he said.
The situation resembled the time when two-speed drives were superseded by four-speed. At that time, he said, some manufacturers were left with virtually worthless stock which they then had to dump on the market. 'There are a lot of people stuck with a lot of stock and the manufacturers aren't offering any price protection.' Prices changed on a weekly basis and some people had suffered losses because they had bought the drives at a much higher price than the #35 or so they were costing last week.
Nick Amer, deputy purchasing manager at Micro Peripherals, said the window of opportunity for selling CD drives had shrunk dramatically since the demise of the two-speed products. 'Everyone wants the future technology and a lot of it is to do with media hype,' he said. 'We are extremely wary about buying more than 500 at a time but there's no doubt the market will stabilise.' Amer added that he thought manufacturers were sitting on millions of drives and grey market activity, particularly from the US, was high. Some companies were offering grey drives from the US at very low prices, depending on the volume you bought.
'Four-speed drives will stabilise somewhere around the #20 mark,' said Amer. 'The market will eventually say enough is enough.' That, he said, will happen in June or July. Other technologies, too, were on their way.
There are already rewriteable CD drives available and they still offer reasonable margins for distributors and dealers but that will change as the year moves on. 'By the end of this year you'll see CDR drives reasonably cheap at around the #200 mark.' Amer thinks that because these drives are becoming inexpensive commodities, we're bound to see more deals where they are bundled with software and this could offer a solution for dealers. But at present most software is still written for two speed drives so people don't see many performance advantages anyway.
Yet technology is moving so quickly on the CD front that by the end of the year we will have 10 and 12-speed drives, followed shortly after by rewriteable drives which can store gigabytes of data, still using the 5.25in format.
It seems that Bateman is right and that dealers and distributors are only likely to see any kind of stability when the higher speed drives come on line. Until that time, it's a buyer's market, and there will be plenty of bargains around.
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