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Last updated: November 17, 2005 4:25 pm

Sony and NEC plan link on DVD drives

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Sony and NEC, which are supporting competing standards for next generation DVDs, are teaming up to make the key devices used to read CD and DVD information.

The companies have agreed to set up a joint venture with sales of about Y220bn (US$1.85bn), in a bid to strengthen their global competitiveness in a growing market.

Sony, which has optical disc drive sales of Y150bn, will take a 55 per cent stake and appoint the president of the new company while NEC, whose business in the sector comes to about Y70bn, will take a 45 per cent stake.

Sony and NEC are competing in a battle to decide the standard for the next generation of DVDs. Sony leads the development of Blu-ray discs while Toshiba’s HD-DVD format is supported by NEC and Sanyo, among others.

NEC said on Thursday that the new venture had “nothing to do with the [battle over] next generation DVD standards”. The new company would be asked to supply optical disc drives for next generation DVDs based on both Sony’s blu-ray disk technology and NEC’s HD-DVD technology, they said.

The market for optical disc drives is expected to grow significantly, but price pressure is severe, leading to consolidation in the industry. Hitachi has teamed up with LG while Toshiba has a joint venture with Samsung.

In this environment, Sony and NEC decided to pull their resources together and jointly plan, design, manufacture and market optical disk drives, they said.

Demand from DVD manufacturers is forecast to increase from about 20 per cent last year to about 35 per cent of the overall market.

Sony, which has expertise in optical pick-up technology, has a 16 per cent share of the optical disc drive market, trailing the 25 per cent share of Hitachi-LG Data Storage, the joint venture between the Japanese and South Korean groups. But combined with NEC’s 7 per cent share of the overall market, the new joint venture would come close to matching the number one.

NEC said that in the market for DVD-RW, rewritable discs used in PCs, the Sony-NEC venture would command a 31 per cent market share, leapfrogging number one Hitachi-LG.

Although the two groups will compete in the market for next generation DVDs, the venture is aimed at taking advantage of expanding growth in the market for current DVDs, NEC said.

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