My six-year-old son recently enquired: "Why are all the toys in the world made in China?"
When I asked why he thinks that is so, he turned over all his racing cars, toy soldiers and superheroes and showed me the 'Made in China' logo on the bottom. There's no arguing with that.
Obviously, it took quite a while to reduce the concept of manufacturing costs combined with the disparity of pay scales in different worldwide economies to manageable six-year-old chunks. The upshot was that the Chinese can do it cheaper and more efficiently than anyone else.
The toy scenario mirrors the world of PCs and notebooks. Just take a close look at your Hewlett-Packard (HP) or Dell laptop and you will find all the evidence you need that it was designed and assembled in the Far East.
The original design manufacturing (ODM) market, which is led by Taiwanese ODMs such as Quanta, Compal and Lite-On, is responsible for most of the notebooks in circulation today.
At the start of every year, the big PC brands place their billion-dollar orders with the ones that can do it best, but also for the least money. The desperation of ODMs to secure those orders through constant undercutting is partly to blame for the arrival of the almost margin-free £500 notebook.
One notebook distributor recently told me that it had shifted 1,000 leading-brand notebooks at £349 each. This may sound like crazy business for the distributor, but at least it was business. However, as a result, many integrators have deserted the entry-level market and gone straight to the high-end.
So where is it all going to stop? Integrators have been asking this for some time now, knowing that mid-range notebooks may soon be the next casualty of this constant undercutting.
I am happy to report, though, that the ultra-keen pricing of ODMs is coming full circle and biting them on the proverbial.
Recently, most of the world's largest makers of laptops, including Quanta and Compal, saw their margins drop to less than six per cent for the first time. With Dell, HP and Acer squeezing these companies like lemons, there's little chance of those margins increasing.
In fact, there's not much hope of them dropping too much further either since a few more percentage points will put them out of business. So precarious have things become that Compal's president Ray Chen has offered to step down if margins drop below five per cent.
While that doesn't mean that notebook price wars are going to disappear, it does indicate that prices have almost hit the bottom. With some kind of clearer view of future pricing, integrators should find it that bit easier to plan ahead with some confidence for the first time in more than two years.
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