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Last Updated: Thursday, 30 August 2007, 13:08 GMT 14:08 UK
The falling price of electronics
Techwood set-top box

Tesco is offering what it claims is the UK's cheapest digital set-top box. With a price tag of just 10, the Freeview box will certainly sound like a bargain to anyone who forked out over 100 to be in the first wave of digital switch-over.

Sitting next to it on the shelf could be Tesco's newly-launched 9 DVD player, while other supermarkets and the internet are offering equally knock-down prices for a range of electronic goods.

Consumer electronics have been inexorably falling in price as gadgets are added to the shopping trolley alongside the bread and milk. It is great news for customers but it begs the question - how did they get to be so cheap?

In part it is due to the falling price of components, said Chris Crotty, a senior analyst with US research firm iSuppli.

"Prices have come down but a set-top box for 10 is unusually cheap. That price must be below what it cost to make it," he said.

With DVD players and set-top boxes routinely available for less than 30, it is easy to forget that some pretty complex electronics still go into making these devices.

PC industry

A typical set-top box is made up of a front-end, containing a tuner, which picks signal and a demodulator which converts to it a digital video signal.

The back-end is made up of a decoder which in turns creates the pictures you see on your TV screen.

According to Mr Crotty, the decoder chip alone costs at least $6-$12 (2.90-5.90) to manufacture and he believes a rock-bottom price for set-top boxes would be around $30 (14.90).

Tesco wouldn't discuss the margins on the 10 set-top box, saying simply that "we are able to sell it for 10 because we buy in bulk".

In this respect, consumer electronics is following a similar trajectory to the PC industry, where machines are routinely sold at less than the cost to manufacture them.

"In the computer industry the margins are low and it is difficult to make money. Manufacturers rely on selling in volume," said Chris Price, publisher of consumer electronics website TechDigest.

He believes new routes to market is one of the main reasons behind the huge price drops in consumer electronics.

"The consumer electronics industry had an easy ride for years. They had the same retail channels and they were able to sell stuff at an agreed price keeping prices artificially high. Now with new channels such as the internet and supermarket, the floodgates are open," he said.

Currys.digital store
The high street is facing stiff competition from the net
While that is good news for consumers because it creates an extremely competitive market, there is likely to be a pay-off as manufacturers cut costs to get the cheapest possible price, he said.

"The quality isn't as good as it used to be. I guess if you pay 69 for something that a couple of years ago would have cost 400 then the quality isn't going to be the same," said Mr Price.

He speaks from personal experience. An integrated TV/DVD player he recently bought from Tesco for 69 is being returned because it does not work properly, he said.

"Goods like this are made cheaply, often in Chinese factories where the quality control is not what it should be. I blame Tesco - they should check quality more thoroughly," he said.

Tesco maintains that there has been no compromise on quality.

"Corners are definitely not being cut on quality to get these cheap goods on the shelves," said a Tesco spokeswoman.

Disposal tech

LG's dual-format DVD player
There are still plenty of high-end products on the market
In the US, the falling price of consumer electronics is changing the attitude of consumers towards devices, according to Mr Crotty.

"In the digital camera arena prices have fallen so much that the growth in sales is twice what we expected. People are saying the price is so low I might as well get a replacement," he said.

Such an attitude is likely to create its own environmental problems as gadgets become increasingly disposal, he added.

With iSuppli predicting that the consumer electronics market will be worth $344bn by the end of 2007, there is clearly still plenty of money to be made in the industry.

For every 30 DVD player on the high street, there is a high-end dual-format Blu-Ray and HD-DVD player for those with a spare 1000 to spend.

But for those with less disposable income and a gadget-obsessed male in the family, the trip to Currys to admire the latest piece of kit with the wistful caveat of "I'll have to wait until the price comes down", may not be quite over yet.

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