Sony and NEC form joint venture for optical disc drives

18 Apr 2006

As Hollywood studios are poised to start releasing films in Blu-ray and HD DVD formats, two of the larger optical disc developers have joined forces in a bid to leap-frog the competition in the high definition storage market.

Sony and NEC agreed earlier this month to establish a joint venture (JV) company to further develop and commercialise optical disc drives (ODD), with an eye on the emerging high definition movie and television markets. Notably, the stockholding between the partners is Sony 55%: NEC 45%.

Sony says that the new company, Sony NEC Optiarc Inc., will by virtue of Sony's and NEC's market shares immediately become the number two ODD manufacturer behind Hitachi-LG Data Storage by jumping ahead of Toshiba Samsung Storage.

Shinichi Yamamura, formerly deputy president of Sony's Video Business Group, is to serve as the president of the new company. As of 1 April, Sony and NEC separated their respective optical disc drive businesses ahead of the JV. Sony NEC Optiarc was formed on 3 April by combining these two separated businesses.

The 350-strong new company, which is headquartered in Tokyo, Japan, is expected to generate business worth 220 billion yen (US$1.87 billion), based on Sony and NEC's combined sales of the optical disc drive businesses in 2004.

Under the EU's merger regulations, the European Commission cleared the creation of the new venture. The EC concluded that the transaction would not significantly impede competition in the European Economic Area. It added that the JV will face competition from players such as Hitachi LG DS, Toshiba Samsung, Pioneer, Panasonic and Lite-On and others.

Complementary Arrangement

"Sony and NEC believe that such cooperation will be complementary", Masahiro Toyama, senior marketing manager, optical storage, IT peripherals at Sony Semiconductor & Electronics Solutions in Europe, told optics.org. "We can expect great synergy by this merger in terms of procurement of key components, development, production, and even sales of the optical disc drive business. We judged that it would be possible to build a win-win relationship by integrating our resources."

NEC has substantial ODD engineering design know-how and competitive LSIs (large scale integration of electronic integrated circuits) while Sony has the optical pickup and drive design knowledge and resources. The first batch of products that can be expected from the JV will first of all be DVD writers similar to the models Sony is currently selling.

So, considering that NEC is backing the HD-DVD format while Sony is a member of the Blu-ray Disc Association, where does Sony's Toyama see this storage technology going?

"As for the next generation of optical data storage systems, blue laser-based optical drives, it is possible that the joint venture will develop both competitive Blu-ray and HD DVD technologies. It would be difficult now to develop a drive that supports both formats."

Sony remains convinced that the Blu-ray Disc format has the biggest potential to become the next major optical storage format both for the IT and consumer electronics world. Sony Recording Media & Energy Europe has just launched what it believes to be the first Blu-ray Disc media in Europe. And the Sony IT Peripherals division says it plans to launch a Blu-ray disc drive for PCs in the second half of 2006. The first Blu-ray Disc players have already been announced in the US.

"The DVD format is widely accepted but the next step in optical disc migration is to have a significantly higher capacity that allows high definition recording and higher quality such as in TV pictures," he continues, "but what is really important with next generation optical technology is how to extend the market from its current PC-based position to wider consumer applications and games." This is expected to include the delayed Play Station 3, now expected to be released in November 2006.

"Sony NEC Optiarc will keep considering what kinds of products will be the best for the market or user, but one thing is certain, we have greater power and resources than before to be able to lead the optical market," adds Toyama.

But he also cautions: "What we don't want to do is get too far towards the next generation of optical storage media too quickly because we don't want to too far ahead of the consumer."

• Samsung announced on 6 April that it was delaying the launch of its Blu-ray players by a month, to 25 June. The company blamed the delay on compatibility testing with Blu-ray discs that it needs to complete before releasing the hardware. "We still anticipate that the Samsung BD-P1000 will be the first Blu-ray player to launch in the U.S.," Samsung said.

Meanwhile, Sony Pictures Home Entertainment is planning to launch some of its movies on the Blu-ray format on 23 May. The website videobusiness.com reported Warner Home Video senior VP Steve Nickerson saying that the studio will likely have some of its Blu-ray titles out around the time of the release of Samsung's new players. Specific film titles were not revealed but Nickerson said there would be some overlap with the titles it releases on HD DVD.