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Technology Stocks : C-Cube -- Ignore unavailable to you. Want to Upgrade?

To: BillyG who wrote (35084)	8/10/1998 10:01:00 PM
From: John Rieman	Read Replies (1) \| Respond to of 50808

SMC is a C-Cube customer, and Licensing fees are adding too much to DVD player costs..................... asiansources.com Currently, most essential parts are purchased from Japanese companies. For instance, SMC Multi-media sources most key components from Japan and Korea to ensure quality, and purchases MPEG-2 decoder chips from C-Cube of the United States. This has kept component costs high, according to procurement and trade manager Jackey Ho, but she predicts prices are going to fall in the fourth quarter as the quantity of DVD players shipped increases. Yanion's Ho does not anticipate sourcing servo ICs, drivers, laser pickups or any other key components outside of Japan for at least the next two to three years. Thus, to cut costs, Yanion is looking for ways to make DVD players with fewer components. Ho said the company could reduce the price of a player by offering two-channel audio output as opposed to the 5.1-channel output, which is specified in the DVD standard. Thakral is already looking to China and Malaysia as possible future DVD component sourcing outlets. According to the firm, there are several trustworthy manufacturers in those countries with plans to produce DVD components. Aside from finding cheaper sources, hardware makers are working to reduce the component count to cut costs. "Only makers who cut costs quickly will be successful in this line," said Samsung's Yang. "It is natural that makers' levels of quality are similar, but as a result, it is very important to cut manufacturing costs fast." Samsung is working to reduce its chip count to five from nine, through the use of ASICs. Yang said there is also room to cut the cost of DVD pickups. Samsung is working to improve its own DVD pickup. Danitec hopes to increase the cost-effectiveness of its players with its third-generation entry, scheduled for launch early next year. The model will boast a simplified design that places more emphasis on software, according to Chang. Licensing fees take toll The DVD technology licensing process is a major hurdle in reducing production costs, and some say it could even prove a deterrent to output expansion. Licensing fees currently account for as much as 15 percent of the total OEM price of a DVD player. For example, for each DVD player they manufacture, makers have to pay 3.5 percent of the FOB unit price to Sony and Philips, 4 percent to Matsushita and 2.3 percent to Thomson. These are in addition to $4 for MPEG and $1 per channel of Dolby AC-3. They must also pay nominal amounts to CSS and Macrovision and must renew their DVD format/logo every year. "We have to pay more than 10 percent of a DVD player's price to those companies for licenses," said Acer's Ho.