Toshiba may lose over $200 on every HD-A1 player it sells, according to bill of materials analysis from iSuppli market research company. Apparently, the Toshiba’s HD DVD player that retails for $499 is based on the Intel Pentium 4 processor and does not feature enough cost-efficient design.

“The Toshiba HD-A1 is basically a combination of a low-end PC and a high-end DVD player,” noted Andrew Rassweiler, teardown services manager and senior analyst for iSuppli.

According to iSuppli’s teardown analysis, the bill of materials (BOM) cost for the HD-A1 exceeds its $499 retail price. The HD-A1's estimated US$674 BOM figure excludes costs for manufacturing, testing, cables, remote control and packaging. Those additional costs could easily push the total cost of the HD-A1 to more than $700 per unit, according to the research firm. Earlier it was reported that blue laser players cost over $400 to build. It remains to be seen how expensive will be Blu-ray disc players to make. It is generally believed that the latter are more expensive to produce compared to HD DVD devices.

The research firm claims that the HD-A1 employs an Intel Pentium 4 as the main processor, Broadcom’s BCM7411 for HD video decoding and four ADSP-2126x SHARC programmable digital signal processors (DSPs) from Analog Devices. The total estimated cost of these semiconductors is $137. Usually consumer electronics utilize more cost-effective application specific standard product (ASSP) semiconductors instead of general purpose processors available in retail. Additionally, Toshiba HD-A1 uses 1GB dual inline memory module (DIMM) from Hynix Semiconductor, a 256MB NAND flash chip from M-Systems and 32MB of MirrorBit flash memory from Spansion. The total worth of memory is $125.

iSuppli had found that in total Toshiba spends $366 on semiconductors, $200 on HD DVD optical drive, $40 on electro-mechanical elements, $21 on mechanical details, $10.5 on passive components, $7.6 on “discrete semiconductor” and $28.1 on other parts.

Toshiba now has two HD DVD players in its lineup: HD-A1 that is available for $499 and HD-XA1, which retails for $799 and offers some premium features along with better design. It is unclear what is inside the HD-XA1 and whether the company actually makes money on selling the part. Given that Toshiba does not sell content, the main reason why the company pushes the HD DVD standard to the market is intention to make it more popular than competing Blu-ray, which would mean higher royalty fees to Toshiba. Perhaps, the company wants to earn the money back with “subsequent products”, according to the iSuppli analyst.

“It’s unusual to find this level of subsidization outside of the video game console and mobile phone markets,” explained Chris Crotty, senior analyst, consumer electronics at iSuppli. “Presumably, Toshiba anticipates making back any initial HD-A1 losses with subsequent products. There is little question that Toshiba had to use a high-cost design for its first model. But there is a big question as to whether pricing its player so much less than Blu-ray is worth the financial risk.”

iSuppli forecasts that factory shipments of all next generation DVD equipment - both HD-DVD and Blu-ray - will soar to 65 million units in 2010, up from 1.6 million units in 2006. But unlike other industry experts, iSuppli does not foresee a clear winner in the battle between HD DVD and Blu-ray.

“This is not a repeat of VHS vs. Beta. The market dynamics are very different. The most likely outcome is stalemate, with the savvy manufacturers introducing dual-format players as early as the 2006 holiday season,” Mr. Crotty said.