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SEMICON REPORT: Losers And Winners In Blu-ray Victory

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Old 02-29-2008, 07:30 AM   #1  
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Arrow SEMICON REPORT: Losers And Winners In Blu-ray Victory

SEMICON REPORT: Losers And Winners In Blu-ray Victory

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February 27, 2008: 08:59 AM EST

NEW YORK -(Dow Jones)- Blu-ray's victory in the long, costly contest with HD DVD to become the reigning high-definition DVD format is causing chip makers to scramble, either to join the winning side or fight off would-be rivals.

A host of semiconductor companies have invested time and money developing the complex multimedia processors that power high-definition DVD players. While they made chips usable on both sides of the format war, neutrality was less of an option when it came to developing the necessary software, and chip makers had to pick sides.

Now, those tied to Toshiba Corp. (6502.TO) and its failed HD DVD effort are facing both the costs of wasted research-and-development and the challenge of unfavorable strategic positions. Meanwhile, those allied with Sony Corp.'s (SNE) Blu-ray technology are trying to make the most of a post-war market that's poised to take off as consumers who waited for a winner shop Blu-ray.

"There are definitely some clear losers," said Gartner Inc. analyst John Barber, pointing to NEC Corp.'s (NIPNY) chip division, NEC Electronics Corp. ( 6723.TO), and Broadcom Corp. (BRCM), as the most closely tied to Toshiba. " Whether this is going to hurt them long term is a question mark. But certainly it will short term."

Barber said their revenue won't suffer much because HD DVD sales never took off. However, they will have to absorb software R&D costs that can't be recouped, which he estimates at 30% to 40% of overall chip-design costs. Moreover, as they shift focus to Blu-ray, the companies will face twin burdens of soaring competition and falling prices.

Among the winners is Sigma Designs Inc. (SIGM), which provides the system-on- a-chip inside the majority of stand-alone Blu-ray players, including those from Sony, Samsung Corp. (000830.SE), Sharp Corp. (SHCAY, 6753.TO), Pioneer Corp. ( 6773.TO) and Matsushita Electric Industrial Co. Ltd.'s (MC) Panasonic. Though of course, its domination will soon be tested by rivals.

The Losers

Japan's NEC, maker of the main multimedia processor system-on-a-chip for HD DVD players, appears to be the worst off. NEC invested "multiple years of man hours to develop the software stack," said Barber, who worked for NEC before joining Gartner.

Though NEC hedged its bets by forming a Blu-ray joint venture with Sony geared to the personal-computer market, Sony NEC Optiarc, "it's going to take them some time to turn around," he said.

"NEC Electronics never affiliated with one side or the other. Our company's interest has always been to deliver solutions that respond to market needs - whether that be HD DVD or Blu-ray," said spokeswoman Sophie Yamamoto. "We don't expect that this recent development in the format war will cause us much difficulty." She declined to comment on the extent of NEC's R&D investment in HD DVD.

Broadcom, which makes chips for a combined HD DVD-Blu-ray player from LG Electronics Inc. (066570.SE), also invested heavily in software for HD DVD, Barber said. "Those resources are spent," he said. "They definitely didn't come out of this unscathed."

"Vendors like Broadcom...that were making chips for dual-format (HD DVD and Blu-ray) will see this business collapse, since one of the formats is disappearing," said Krishna Chander, an analyst at research firm iSuppli Corp., in an email.

Broadcom said it's well prepared to go after business with the numerous consumer-electronics manufacturers who are preparing to jump into the Blu-ray market with a chip that offers advanced features and low costs for manufacturers.

Intel Corp. (INTC), which publicly allied with Toshiba and HD DVD, did not develop hardware for one format or the other, so its investment losses are likely minimal. Intel said its products work with both formats, and it expects to benefit from an expanding player market.

"Anything requiring more computing power is good" for Intel, spokesman Tom Beermann said.

The Winners

Sigma Designs' success was partly accidental. The company tried to win Toshiba's HD DVD business, said Ken Lowe, vice president of strategic marketing, but Toshiba went with Broadcom and, later, NEC.

"We went out there trying to capture as much high-definition player business as possible," he said. "Mainly it was Blu-ray business that was available."

Now, the company is the incumbent in a business that is about to blast ahead. Consumers bought 2.9 million blue laser DVD players last year but are expected to snap up 7.6 million this year and 13.6 million in 2009, Gartner estimates.

The lack of a single standard "kept high-definition players in the purview of enthusiasts," Lowe said. "Demand will pick up from the mainstream consumer now that the format war is over." He expects a spike in the second half of 2008.

Also on the winning side was International Business Machines Corp. (IBM), which, together with Sony, makes the cell processor for the PlayStation 3 game console. The PS3 includes a Blu-ray player and sells for about $399, while stand-alone Blu-ray players sell in the $399 to $599 range. The bargain could provide a quick boost for PS3 sales.

New Entrants

Analysts expect a number of new chip makers to enter the Blu-ray market, including Mediatek Inc. (2454.TW) and Zoran Corp. (ZRAN), which had been waiting for a victor before committing resources.

"They have been entering the field of blue laser optical drives and wondering what direction to take," iSuppli's Chander said. "Now the direction is very clear."

Mediatek spokeswoman Sophia Liang said her company has "a project on schedule to launch chips" for Blu-ray players, though she declined to provide further details.

Zoran demonstrated multimedia processors for both Blu-ray and HD DVD at the Las Vegas Consumer Electronics Show in January. "While we have proceeded cautiously during the format wars, planning to go as the market and our customers direct, going forward we will fully support Blu-ray," said Dave Pederson, vice president of corporate marketing.

An increase in the number of chip building for Blu-ray seems destined to speed up chip commoditization and price declines. And consumers will be the winners. Sigma Design's Lowe said it's widely expected that new Blu-ray players from China and Taiwan will be in stores at prices near $200 in time for Christmas.

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http://money.cnn.com/news/newsfeeds/...4_FORTUNE5.htm
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Old 02-29-2008, 09:45 AM   #2  
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2.9m blue laser DVD players? I take it thats a worldwide figure for stand alone players across both formats.
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Old 02-29-2008, 09:51 AM   #3  
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Meanwhile, those allied with Sony Corp.'s (SNE) Blu-ray technology are trying to make the most of a...
I thought Sony wasn't BD?
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Old 02-29-2008, 02:52 PM   #4  
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I thought Sony wasn't BD?
Shhh.. Don't tell anyone that.
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Old 02-29-2008, 03:39 PM   #5  
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Funny they didn't include Toshiba as a "winner" with the PS3 part of the BD wining equation. After all, Toshiba owns the factory now that makes the Cell Processor.

Could they win even in defeat?

This article also explains WHY Sigma Designs was on AVS talking up BD and bad talking HD DVD. They were pissed that Toshiba went with Broadcom chips.
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Old 02-29-2008, 07:49 PM   #6  
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Originally Posted by PFC5 View Post
Funny they didn't include Toshiba as a "winner" with the PS3 part of the BD wining equation. After all, Toshiba owns the factory now that makes the Cell Processor.

Could they win even in defeat?

This article also explains WHY Sigma Designs was on AVS talking up BD and bad talking HD DVD. They were pissed that Toshiba went with Broadcom chips.
Yea I read that part and laughed. Somehow IBM won because Sony uses a cell processor. Guess the part about Toshiba, Sony, and of course IBM co-inventing it didn't count.

Secondly since Broadcom's chips can be used in BD only players they already have a working chip (wasn't Broadcoms chip used in Sammy's 1400?) they really didn't loose all that much.

Thirdly NEC is in a position to make Blu-Ray drives since the differences between HD DVD and Blu-Ray drives really aren't very much.

Finally Sigma is better off than Broadcom how? Because they only made Blu-Ray SoCs while Broadcom made both, that doesn't even make sense.
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