Rewritable CD emerging; DVD lags

Rewritable CD emerging; DVD lags

By Zachary Shess

Slowed by divergent standards, vendor de-lays, and high prices, a blossoming DVD drive market is about two years behind earlier industry forecasts, according to a recent report from Freeman Associates, a market research firm in Santa Barbara, CA.

DVD remains poised for eventual mainstream implementation in 2003, but must overcome barriers before vendors can generate enough customer demand to justify production, says Bob Abraham, vice president of Freeman Associates.

"Without question, the hesitation in the movement toward DVD has been because of its unsettled nature in the rewritable area," says Abraham. "From a price standpoint, you`re paying a premium for DVD. In terms of functionality, there are very few compelling reasons toquickly move to DVD because almost everything is available on CD-ROM."

CD-RW usage surged last year as a result of delays in rewritable DVD. CD-RW vendors exploited the uncertainty,

and worldwide CD-RW shipments jumped from 1.25 million units in 1997 to 4.8 million units in 1998. Meanwhile, 1998 rewritable DVD shipments tallied a mere 137,000 units.

Overall, the worldwide optical drive market continues to exceed expectations, according to the report, and will continue to grow. Unit shipments increased from 87.5 million in 1997 to 105.5 million in 1998. The report projects that total will exceed 156 million units in 2003. Read-only will continue to be the largest segment, growing from 82.3 million in 1997 to nearly 97 million in 1998, with 139.7 million units projected to ship in 2003. Four manufacturers--Toshiba, Matsu-shita-Kotobuki Electronics, LG Electron-ics and Hitachi--control 40% of the read-only segment.

Significant price erosion over the next five years, however, will cause OEM-level revenues to fall from $7.3 billion in 1997 to $6.9 billion in 1998, and to an estimated $6.3 billion in 2003.

Normally, increasing shipments with declining revenues is a formula for industry consolidation, but the report says the optical drive industry has about 50 vendors with new companies jumping in every year. Conversely, as the market matures and pricing pressures increase, more vendors could bow out. "It`s pretty hard to project any quantity of suppliers, but I think consolidation is probably in order," says Abraham.

This article was originally published on April 01, 1999