Dutch consumer electronics and semiconductor supplier Royal Philips Electronics N.V. and Taiwan's Benq Corp. said they will pool resources in the optical storage sector in an effort to cut operating costs and boost market share.
Benq and Philips last week agreed to create a joint venture named Philips Benq Digital Storage they claim will have a 15% share of the global optical storage market by the end of 2003. The joint venture, which will be based in Taiwan, will help relieve pressures on the two companies' optical storage operations.
Philips will combine its intellectual property with Benq's strength in low-cost manufacturing and logistics. The joint venture is especially important for Philips and emerges out of the company's efforts to revamp its money-losing optical storage business.
"This joint venture concludes the series of measures taken to bring Optical Storage back to profitability and will position us well for continued participation in the data segment in a profitable way," Arthur van der Poel, a board member of Philips, said at a press conference in Taipei.
Philips is eyeing the $8 billion market for storage devices, which include CD-ROM, CD-RW, DVD-ROM and DVD+RW. The partners plan to invest $20 million in the joint venture with Philips holding a 51% stake and Benq the balance. Executives at Philips and Benq, Hsinchu, said they hope to double their market share.
"The venture is targeting 15% of the market" within the next 12 to 18 months, said Joseph Chuang, chief executive of the venture and a vice president of Philips' Asia-Pacific operations. The combined share of Philips and Benq stands at about 7% to 8%, he said.
Philips Benq Digital Storage faces tough competition from industry leaders such as Korea's Samsung Electronics Inc., Lite-On IT Corp., Taipei, as well as Hitachi-LG Data Storage Inc., a similar partnership set up by Tokyo-based Hitachi Ltd. and Korea's LG Electronics Inc. Still, Benq sees good chances for the venture to surpass its rivals.
"Some of the keys to succeed in this industry are IP, [manufacturing] scale and inventory control, all of which are strengths owned by Philips and us," said William Wang, a vice president at Benq. "The bigger you are, the better off you'll be."
The alliance will enable Philips and Benq to reduce procurement and development costs and to share resources, the companies said. Benq and Philips will cooperate in research, development, and setting product standards. Benq will be in charge of manufacturing, while the venture focuses on sales, said K. Y. Lee, chairman and chief executive of Benq.
Most of the components will be provided by Philips, Lee added. In the future, the venture plans to buy chipset solutions from third-party vendors like Taiwan's MediaTek Inc. and Via Technologies Inc.
The venture initially plans to employ 300 people. Operations are scheduled to begin next month with total output of 28 million storage units through the end of this year.
Philips has had a relationship with Benq since 1994 and has licensed technology and outsourced production to the company.