China Electronics Wholesaler

As recently as this spring, bargain-priced CD recording media piled up on the store shelves. But have you checked those price tags lately?

While the cost of other PC equipment has been dropping, CD-R/RW media bargains are harder and harder to find. In fact, stock up now, because hefty increases are coming--possibly as much as 350 percent above the lowest CD-R media prices seen this past year, say industry experts.

"A spindle of CDs, with rebates, was down as low as 10 cents a disc," recalls Peter Brown, removable-storage analyst at IDC. This summer, Brown expects discs to go up to 30 or 35 cents on average, and stabilize there. CD media seller Verbatim--a Mitsubishi Chemical subsidiary--as well as Memorex and TDK were expected to announce price increases after press time.

CD-R media's price increase also means CD-RW media costs will probably stay at current levels (about 70 cents per disc on average) instead of dropping.

Blame the CD media price hikes on recent soaring demand, consolidation among makers, and high patent royalties.

Behind the Scenes

Back in 1998 and 1999, when CD-RW drives were first catching on, Taiwanese manufacturers ramped up their CD media production capacity tremendously. (Approximately 75 percent of CD-R/RW discs are made in Taiwan.)

Dozens of companies opened factories in 1998 and 1999, Brown explains, with manufacturing capacity of 100 million discs per month per company. That created a huge CD-R/RW media supply, far exceeding demand at the time.

Small and medium-size manufacturers "were just producing CD-Rs, with no firm purchase orders from anybody," elaborates Brad Yeager, marketing manager for blank media at Memorex.

Cutthroat pricing forced some vendors out of business, and others reduced their production levels.

Then last year, demand started booming, thanks to the surging popularity of CD-RW drives. But the damage to the industry--with fewer firms churning out fewer discs--had been done, and has led to a CD-R/RW media shortage and higher prices, reversing the previous situation.

Royalty Pains

Fixed patent royalties added to pricing pressures. Despite shrinking profit margins, companies still had to pay Philips, Sony, and Taiyo Yuden 8.3 cents for every disc made.

At that rate, a CD-R disc should have cost more than 50 cents at retail--not the 30 cents or less many discs sold for last year--says Robert Tsai, marketing and sales manager at Hotan, the U.S. subsidiary of CMC Magnetics, a Taiwanese CD media maker.

Earlier this year, Taiwanese makers, frustrated by the royalty rates, brought an unfair trade practice complaint to Taiwan's Fair Trade Commission. They claimed Philips charged royalties as if it were the sole patent holder, but it collected royalties for itself, Sony, and Taiyo Yuden. The commission ruled the three companies' handling of CD-R patent licensing violated Taiwanese law, and fined Philips.

That led to new, lower royalty fees, which should allow CD makers to stay in business and abide by patent laws.

Your Bottom Line

Pricing should begin to stabilize by July, once multiple vendors have announced their hikes. So get those bargains while they're still around.

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