"DVD Suppliers Work On Jump-Start From China"
(02/16/98; 12:12 p.m. EST)
By Junko Yoshida, EE Times
MILPITAS, Calif. -- A handful of component makers
are betting on the wild card of the vast but unproven
Chinese market to jump-start DVD sales, which have
been slow to take off in the West.
If the gambit proves successful, China would become
not only a key consumer of DVD but also a
production engine for exported players. That could
accelerate the downward price curve for players and
jeopardize the ability of the technology's Japanese and
European pioneers to recoup their investments.
LSI Logic executives toured China last week, meeting
with three to four potential DVD-player manufacturers
and distributors per day. LSI Logic and partner Sanyo
Electric Co. have readied OEM kits that provide all
the required DVD-player specs, components, test and
validation software, and tools to customize features.
The two are sharing the cost of establishing a
distribution network in China and a technical-support
infrastructure both in China and in Japan.
Also offering DVD OEM kits in China is C-Cube
Microsystems, the dominant supplier to China's
booming video-CD OEM market. Michael Wood,
senior director of the consumer division, said C-Cube
has completed "a reasonably good, selective rollout"
of the kit--offered for a one-time fee of $100,000--to
five to 10 local manufacturers so far, and that it will
target a like number of local companies via a second
selective rollout later this year.
The China moves come as worldwide shipments,
including inventories, of DVD players reached only
700,000 units last year, according to figures from
market-research company InfoTech, based in
Woodstock, Vt. More than a dozen manufacturers
currently compete for slices of that meager pie.
"Let's not kid ourselves," Wood said. "In the
digital-video world, there is no 20-million-unit market
anywhere in the world outside China."
The hunch is that Chinese consumers, who have
accounted for the vast majority of the world's
video-CD consumption, are primed for a digital-video
upgrade.
"China has a potential to become a stopgap market for
DVD-component and -hardware manufacturers," said
Michael Gold, senior research engineer at SRI
Consulting, based in Menlo Park, Calif. It could
literally absorb units that were expected to go to the
Western market but failed to do so, Gold said.
Some market watchers are going as far as to predict
that China will become the source for the world's
lowest-cost DVD players within the next few years.
"I've seen a VCD player factory in China with four
floors, with 20 lines on each floor, capable of running
three shifts a day. It's an entirely feasible scenario,"
Wood said.
"We are ensuring that our customers in China can get
a steady flow of cost-effective DVD drives," said
Alain Bismuth, director of marketing for Consumer
DVD products at LSI Logic.
Today, more than 50 percent of a DVD player's cost
comes from the drive's optics, drive mechanism and
chip set. The partnership with Sanyo is critical to
driving the DVD player's bill of materials to $150 by
year's end.
That would enable the retail price to come down to
$200 to $250 -- a price point Bismuth said is essential
for the DVD-player market to happen in China. "We
are up against a huge video-CD market in China,
where a VCD player is sold at $100 to $150."
Pricing isn't the only barrier DVD faces in China. LSI
Logic's Bismuth said backward compatibility with
VCD is "a done deal" but added that the limited
availability of DVD titles is a concern.
"The good news is that legitimate DVD Chinese titles
are now being pressed in China, priced at $6 to $8,"
he said. Four to five disk-manufacturing lines for DVD
have been installed in China over the past 12 months,
and six to seven more are expected to come online
soon.
But some analysts wonder whether too much is being
made of DVD's slow takeoff in the U.S. market,
where roughly 350,000 DVD units were sold last
year. William Zinsmeister, a senior research analyst at
International Data Corp., considers that figure a
respectable showing, "especially when you consider
that the product only went to the national market last
August."
But Zinsmeister also said that the next 12 months are
critical. "In the United States, too many entertainment
media are competing for the same disposable income,"
he said.
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