Sony Corp and NEC Corp agreed to set up a joint venture combining their optical disc drive operations to boost competitiveness, the two Japanese electronics companies said yesterday.
The new joint venture will start operations on April 1, producing DVD drives and CD drives for use in personal computers and other electronics devices, the two companies said in a joint statement.
A potential problem, however, is that Sony and NEC support rival formats for next-generation DVDs.
Sony is promoting a DVD format called "Blu-ray Disc," while NEC is promoting the "HD DVD" format it and Toshiba Corp jointly developed. The two formats are incompatible.
Yoshibumi Yashiro, a NEC spokesman, said the joint venture will design and make DVD drives and CD drives that can be used on both the Blue-ray Disc and the HD DVD formats "for the time being." Whether NEC will continue promoting its HD DVD format in the future will be decided by watching market trends, Yashiro said.
Sony, meanwhile, will promote its Blue-ray Disc format, but it does not intend to interfere in its partner's format business, according to company spokesman Taro Takamine.
Under a memorandum of understanding signed yesterday, the new joint company is 55 percent owned by Sony and the remaining 45 percent by NEC. The two companies will continue talks to strike an official contract, the statement said.
Global shipments of DVD drives are growing as demand for digital consumer gadgets equipped with the drives expands, including DVD players and recorders, and PCs with enhanced audiovisual features.
But price competition is also intense. Prices of these digital products are falling steadily, and there are many DVD drive suppliers.
Through the joint venture, the two companies intend to "bolster the business by combining each other's strengths," such as Sony's optical pickup device technology and NEC's strength in system chips, Sony spokesman Jerald Cavanagh said.
In the fiscal year ended March 31, their combined sales in the optical disc drive business totaled around US$1.85 billion.
Sony stocks rose 1.75 percent to finish at US$34.12 on the Tokyo Stock Exchange yesterday, while NEC closed at US$5.33, up 0.80 percent.
Both companies are based in Tokyo.
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