In 2001, Taiwan’s optical storage drive industry saw production fall for the first time, by 12.5% in volume and 8.6% in value, snapping years of rapid growth.
The decline was led by a steep 30% fall in CD-ROM drive unit shipments, as a weak economy crimped demand for PCs and related peripherals. The outlook for 2002 remains uncertain, industry sources say, citing the saturated business and competition from DVD-ROM drives, many of which can read CD discs. In addition, the low contract prices of CD-ROM drives, at roughly US$20, are fall below the US$40-45 for DVD-ROM drives and make their manufacturers less willing to expand production. On such considerations, it is imperative for CD-ROM drive makers to build enough production scale to boost margins in the long term.
CD-RW
Falling CD disc prices, coupled with growing consumer interest in recording data and multimedia content at home, have boosted the popularity of the CD recording device. Benq (formerly Acer Communications & Multimedia), Lite-On IT and AOpen all reported revenue growth after weighting their product mix towards CD-RW drives. Lite-On IT, in particular, has been thriving on its OEM business to become the world’s leading supplier of CD-RW drives.
The Taiwan-based Photonics Industry Technology & Development Association predicts that Taiwan will take up a 31% global market share with 17.64 million CD-RW drives shipped this year, up from 21% last year.
However, some industry executives caution about oversupply in the second half of the year as a result of ramped-up capacity by Taiwan manufacturers and South Korea-based Samsung. Another potentially negative factor is the aggressive push of 40x and 48x products by some manufacturers, a move with the implications of hurting sales of the mainstream 24x and 32x drives.
DVD player
Demand in DVD players has been growing as media houses release music, video and game titles supporting the DVD format and sales of game console machines spur demand in DVD players. However, their profits this year could take a blow as the world’s main DVD technology owners step up efforts to enforce collection of royalty payments.
To drive down DVD patent royalties, Taiwan’s top-tier drive makers have been in talks with major patent holders in hopes to negotiate favorable terms. Lite-On IT has formed an alliance with JVC, AOpen with Ricoh, and Benq with Phillips and Pioneer. Companies that have not obtained technology licensing would have to make do with producing only hardware, like chipsets, pick-up heads (PUHs), spindle motors and loader trays, that does not directly involve patented technology.
The industry outlook for DVD players this year is conservative. However, Benq could see more room for growth because it handles part of the manufacturing for Philips, which makes DVD players for Microsoft’s Xbox game consoles. Earlier reports of faulty drives by other contract manufacturers have sparked speculation that that more orders may be transferred to Benq in the future.
Combo drive
Growth in combo drives that combine CD-RW and DVD-ROM drives should be limited because the product is still expensive. Manufacturers said the coming years have little room for price cuts because of the products’ high costs related to royalty fees and the complex technology that they require.
Currently CD-RW/DVD-ROM drives come in a “slim-type” to configure with notebook computers. The products’ high price points make them less likely to used in desktop PCs. In Taiwan, only Quanta Storage has the capability to produce the combo drive in scale. Therefore, growth prospects in this segment could be quite limited.
Rewritable DVD
Rewritable DVD technology is dogged with compatibility problems and it remains hard to predict which standard will prevail. The camps of DVD-RAM and DVD-RW will join to promote a new format called DVD-Multi to contest the DVD-Dual standard sponsored by DVD+RW and DVD-RW proponents. Industry observers say eventually the choice of major software and media producers, and the reaction of consumers to prices of the individual disc formats, will determine which will prevail in the rewritable DVD industry. Already, Dell Computer, Hewlett-Packard (HP), Sony and Microsoft sponsor the DVD+RW format.
Currently Benq, AOpen and Ultima Electronics all have started producing DVD+RW drives, but it is still hard to calculate their products’ market demand due to the conflicting standards.
Source: MIC, compiled by DigiTimes, December 2001.
Source: MIC, compiled by DigiTimes, December 2001.
Source: MIC, compiled by DigiTimes, December 2001.
Source: Nikkei Market Access, compiled by DigiTimes, January 2002.
Article edited by Zoran Pavlovski
