Turntable players

	The F93 DVD micro system from mainland China’s Alllike has a 5.6in TFT screen, USB port and card reader.

CD and DVD multimedia systems dominate supply. Value-added features enliven mature line.

China’s production of mini component systems is heading toward models with value-added features and built-in screens. Multifunction products are increasingly prioritized by suppliers, most of which have been hard-pressed to boost their competitiveness and bolster profit margins eroded by tightening price competition and rising production cost.

New releases from China suppliers pack iPod docks and AM/FM radios, currently the most popular add-ons to mini component systems. Some of the more advanced units even support digital TV reception.

More mini component systems now also feature built-in LCD screens, a trend driven primarily by the large supply and lower prices of LCD panels. After the price upsurge in 2007 due to the supply shortage resulting from increased demand from makers of portable electronic products such as digital photo frames, prices of LCD panels, specifically midsize panels, are now down to more reasonable levels. Makers reported price declines in the range of 20 to 40 percent, or more, in recent months. To illustrate, prices of 7in to 8in panels were down to $15 in October 2008 from about $25 in June. Prices of 10in and 11in panels dropped by about 10 percent.

These price declines were brought about by efforts of many upstream panel suppliers to expand their capacity through the establishment of new factories and production lines in an effort to avert another supply shortage. Some companies allotted more capacity to the production of midsize and smaller panels, and this proved beneficial to China companies that focused on mini component systems with smaller panel sizes.

Earlier models of mini component systems with LCD screens used 3.5in, 4.2in or 5.5in panels. Many companies steered clear of 7in to 10in panels, the prices of which went up by 15 to 20 percent.

With LCD prices now significantly lower, more makers in China are considering mass production of mini component systems with bigger screen sizes. Zhuhai Yali Industrial Co. Ltd, for instance, plans to launch more new models with 7in and larger LCD screens.

In addition to stoking the development of mini component systems with larger screens, lower LCD panel prices are expected to translate to lower product prices for these units. As of October 2008, prices of models with built-in screens have decreased by about 5 percent compared with 1H 2008.

Price revisions, however, are not uniform among China makers. Although the cost of LCD panels has been on a downward trend, the cost of other key materials and components remains at high levels. These include ABS, MDFs, raw speakers and some electronic components. As such, some suppliers consider implementing about a $1 to $2 price increase to cover the higher manufacturing outlay. Most suppliers, on the other hand, will keep product quotes at current levels due to fierce competition in the line.

CD and DVD models dominate China’s supply of mini component systems. VCD and old cassette models, which currently account for only a small portion of makers’ production, are expected to exit the market in the near future. Some makers such as Zhuhai Yali still provide units in VCD and traditional cassette designs as per buyers’ request, but these companies no longer develop new models for these types of mini component systems.

Between CD and DVD mini component systems, DVD models account for the majority of China suppliers’ output despite difficulties posed by exorbitant IPR fees. The product’s dominance is expected to persist in the next few years.

In addition to iPod docks, AM/FM radios and built-in TFT-LCD screens, latest product releases from China suppliers feature digital TV receivers and next-generation radio, such as HD, DAB or Internet radio. Some suppliers also provide customized products to include special TV and radio standards of different areas such as Japan and North Korea.

Units with built-in medium to large LCD screens will be in large volume in 2009. China makers have released models with 4.2in to 5.6in LCD screens in end-2007, and are now planning to develop units with screen sizes of 7in or larger.

Enhanced housing design is also an R&D priority for China makers, especially suppliers of CD mini component systems. These makers plan to release more new products in nostalgic designs and wooden surface finish.

	The KW-1010iP micro hi-fi system from Kenwin of Hong Kong features a universal iPod dock and top-loading CD player.

In general, low-end and midrange CD mini component systems from China are quoted from $30 to $50 each. Basic models usually integrate an AM/FM radio, alarm clock and LCD screen with blue backlight. Most models come with an IR remote control, an auxiliary input and three to five preset EQ settings. Cassette players/recorders are optional.

Midrange units typically support MP3 and WMA formats and dynamic bass boost system. USB 2.0 ports and flash memory card readers are incorporated in most midrange products.

Only a few China makers provide high-end CD mini component systems. For these suppliers, improving the audio performance of their products is top priority. Several companies use high-performance speakers, such as NXT flat speakers, to meet their clients’ requirement for high audio quality.

Some high-end units are equipped with wireless connectivity, an Ethernet port and Internet radio. Other models also have touch panel control.

China suppliers of CD mini component systems use decoding ICs from Samsung and Toshiba. Loaders and laser heads are purchased mainly from Sanyo. Other suppliers use Hitachi laser heads.

CD mini component systems with iPod docks are quoted $5 higher than regular models, with prices exclusive of the $5 fee for the Made for iPod certification. Adding Internet radio or HD Radio may raise the price of regular models by about $30 to $40 each. Unit prices of high-end models start at $70.

About 80 percent of Alllike Electronics Co. Ltd’s mini component systems are built with an iPod dock. These models are exported mainly to the US.

DVD mini component systems from China usually feature an AM/FM radio, a Dolby Digital (AC3) decoder, an alarm clock and stereo sound. Most models support NTSC and PAL TV systems, and have S-Video and YCbCr component video output, optical and coaxial audio input, microphone, auxiliary input and remote control. Most models come in 2ch or 2.1ch configuration.

Aside from the above-mentioned functions, low-end DVD models basically support DVD, VCD, CD and MP3 formats, with support for MPEG-4 and DivX optional in some models. Midrange products typically have more multimedia interfaces, such as iPod docks, USB 2.0 ports and flash memory card readers.

DVD mini component systems with basic functions and without screens are quoted from $40 to $70 each, excluding the IPR fee. Units that include additional interfaces for external 5.1ch speakers or other portable devices are usually priced $1 higher.

Models in the high-end segment usually come with TFT-LCD screens or even touchscreens for video playback. Some models integrate Internet radio or HD radio and support digital TV reception via DVB-T.

Suppliers of DVD mini component systems source their decoding ICs from Taiwan suppliers such as Sunplus and MTK. DVD mechanisms and optical pick-up heads are usually purchased from Sanyo and Hitachi, or from local suppliers such as Zhuhai-based Jianghai Electronic Co. Ltd.

Regardless of product type, raw speakers are commonly sourced from suppliers in Zhejiang and Guangdong, which are the leading production centers of speakers in China.

Products in the high-end segment usually go for above $70. A unit with a 7in screen lists at about $80 to $90, and 8in models are priced from $90 to $100. Models with screen sizes of 10in or above are priced from $120 to $140 each. Adding a built-in analog TV reception module increases the price by about $4 to $5, while a DVB-T module adds about $20 to the unit price.

DVD mini component systems, still the dominant product type in China, continue to face challenges stemming from stricter IPR protection. IPR fees can increase makers’ cost by at least 20 percent, and consequently compromise their price advantage. Thus, like most DVD player makers, suppliers of DVD mini component systems usually do not include IPR fees in their declared FOB prices. In most occasions, these suppliers help buyers submit the additional IPR fees.

To lessen the need for acquiring IPR fees, some makers direct their market expansion plans to regions without strict IPR regulations, such as South America, the Middle East and Africa. Meanwhile, the US and Europe are the major export destinations of China’s CD mini component systems, since these products do not require IPR fees.

With iPod docks becoming a standard function in mini component systems, securing iPod certification is expected to become another major concern for China manufacturers. Some makers have obtained or are applying for the license of the Made for iPod logo to be able to penetrate high-end markets such as the US and Europe.

The stronger yuan against the US dollar is another challenge facing suppliers in China, especially export-driven companies. As a countermeasure, makers are revising their strategies to reduce the impact associated with currency conversion. For instance, some suppliers are offering product quotes with shorter validity periods when transacting with US customers. Other makers choose to avoid the US market and are instead focusing on new export markets such as Japan and Brazil.

Apart from these challenges, China makers remain optimistic about future prospects for mini component systems. Although decreased demand from the US has slightly affected sales and output of suppliers, China’s mini component system industry remains stable, thanks to rising demand from the Middle East and Africa, and stable demand from South America and Asia.

China has about 30 active makers of mini component systems. Due to the maturity of the industry, most makers have a steady monthly output volume and established export client base. Most suppliers are medium-scale companies driven by an export-oriented business model.

Tier-one makers have an average monthly output of 30,000 units. North America and Europe are their primary export markets. Makers in this category usually provide CD and DVD mini component systems with value-added features and high sound quality. These makers have the capability to perform all major production processes in-house, including SMT, auto insertion and plastic injection molding.

Makers with a monthly output exceeding 10,000 units are positioned as tier-two suppliers. These makers usually provide mini component systems with basic features. OEM is the major business of suppliers in this category. Products are usually exported to South America, Asia and the Middle East. Tier-two suppliers normally outsource key production processes.

Tier-three manufacturers include those companies that can churn out less than 5,000 mini component systems a month. Most of these suppliers consider mini component systems as a secondary product line. These makers invest less in R&D and new model development for mini component systems.

Hong Kong shipped 6.6 million CD players and mini component systems in 2008, a decline of about 29 percent from 2007’s 9.3 million units. Export sales also slipped by 22 percent, from $200 million in 2007 to only $155 million in 2008.

To rebound from this downturn, some suppliers are moving upmarket, where profit margins are more sizeable. Toward this end, makers are incorporating more value-added features into their mini component systems, as well as adopting new designs to differentiate their products from the competition.

New releases are virtual multimedia entertainment systems supporting FM, digital and Internet radio, and playback of music files from optical discs and flash memory devices. Other value-added features include a USB port, an MMC or SD card slot, MP3/WMA playback and an iPod dock. Some companies have integrated a PLL tuner and DAB radio into their latest models. Bluetooth connectivity and speakerphone functions are also available in some units.

Enhanced housing design is another product development priority for Hong Kong suppliers. Black and white piano paint finishes are phasing out gray and silver finishes used in older models, while knobs and switches are being replaced by touch panel controls. Wood, more commonly used for speaker boxes, is now adopted as a faceplate material alternative to aluminum.

Many of Kenwin Industrial (HK) Ltd’s hi-fi micro component systems feature wooden speaker boxes, a CD player, a USB port, an MMC/SD card slot and an alphanumeric LCD. It also offers special models with Internet radio via Wi-Fi and Ethernet, an iPod dock, radio music ripping, PLL and DAB radio, UPnP support, MP3/WMA playback, and wireless speakers. Bluetooth music streaming and speakerphone function are available in some models.

Like Kenwin, Yusan Industries Ltd is loading various entertainment add-ons to its micro component systems. It offers a built-in iPod dock, Internet/DAB/RDS radio, UPnP, a USB port, an SD/MMC slot, MP3/WMA playback/encoding, and a backlit LCD in addition to the standard CD player, PLL AM/FM tuner and equalizer.

More suppliers are also releasing models with slimmer profiles. Nicetex Electronics Ltd’s mini component multimedia centers come in tower and ultra slim series. The two series feature an optional touchscreen, CD/MP3/WMA playback, a built-in subwoofer, an SD/MMC slot, a USB port, MP3 encoding, ID3 tag display, random playback, clock/alarm, an auxiliary input, and PLL AM/FM radio. Most models support dual AC and battery power supply.

Remote controls have evolved into more stylish models, with many units coming in card and chocolate bar designs with membrane keypads. Despite this growing shift to the high-end market, some companies still offer products for the low-end market.