Earlier this week Sony and NEC announced that they would they would establish a joint venture company in the optical disk drive business, aiming its sights on the goal of being the top optical disk drive manufacturer in the world. Merging advantages of Sony's optical pickups and NEC's system-on-chip LSIs, does create greater economy of scale that should allow the joint venture to take aim at the present top optical disk drive supplier/competitor, Hitachi LG Data Storage Inc., which has nearly 30 percent of the market by units and annual sales of over $2 billion.
Business does make strange bedfellows. As noted in the press release, the joint venture will merge Sony's present optical disk business, which includes CD and DVD, and worth about 150 billion yen (about $1.26 billion), with NEC's DVD disk drive business worth about 70 billion yen (about $589 million). Sony will hold a 55-percent stake vs. NEC's 45-percent. It's key that Sony holds the majority share in this venture.
What's interesting here is that the two companies are already leaders in the next generation of high-definition optical disc systems, but find themselves in two completely different camps. Sony, as the whole world knows, leads the Blu-ray Disc group. NEC, on the other hand, has been promoting and partnering with Toshiba with the HD DVD format. Reportedly, the Sony/NEC joint venture is committed to producing HD DVD drives that NEC has already received orders for. However, once those orders are satisfied, the question that arises is "What's next?" A spokesman for NEC said that "NEC will continue to support the HD DVD format and the merger is basically to boost present CD and DVD business…and the new company will deal with the both formats of next-generation optical disk drives for customers." Really? I don't believe it. With Sony holding a 55-percent majority interest, it could very easily push and promote Blu-ray over HD DVD.
And in a related move, NEC has informed Toshiba that it will continue to support HD DVD. According to NEC, "its position on the next generation DVD format remains unchanged." Yeah, fat chance. Toshiba would like to believe that this joint venture will not have any impact on HD DVD standardization or market penetration. If Toshiba really believes that then they are living in a fantasy world. Clearly, going forward Sony will exert pressure as the senior partner in this joint venture to the detriment of HD DVD.
We always have to remember that Sony had its own version of DVD in the mid-1990s that was promoted, and it failed to gain acceptance at the time. Yes, a few of Sony's design patents did end up in the final spec for DVD, but Toshiba and Warner Bros. reaped the lion's share of patent awards and revenues generated from DVD. So, this time around with blue laser high-definition disc technologies Sony is taking no chances on failure. It wants the royalties from its own patents this time around to the detriment of Toshiba. So Blu-ray vs. HD DVD is not just technological, but also very political. Sony wants to "save face" this time around after saying "never again." It lost out on Beta vs. VHS. It further lost out on its own version of DVD almost 10 years ago. So, Sony's mantra now is "never again." It wants to win, and to do so it is covering all possible bases.