Japan-based Hitachi Ltd on Wednesday confirmed media reports that its central research laboratory had signed a contract to license its DVD-RAM production technology to Prodisc, a major recordable compact disc manufacturer. DVD-RAMs are erasable, high-capacity optical DVD disks. Hitachi, one the world's leading global electronics companies, produces DVD-RAM drives.
The technology transfer agreement followed Hitachi's decision to allow its research and development centers to sell advanced technology licenses -- as a commodity -- and earn income both from their sale and subsequent royalty payments. Prodisc, which already has close links with Hitachi, was the Japanese company's first customer.
Prodisc would not disclose how much it paid or the production technology, but media reports quoted Hitachi as putting the cost at several hundred million yen, as well as 2 to 4 percent of annual sales revenue in royalty payments. The news was preceded by the official announcement on Monday that Prodisc had formed a strategic alliance with ViewSonic Corp to develop and manufacture rear projector screens. ViewSonic is a major monitor maker, and is reportedly looking to move into Internet appliances and digital TVs.
Under the agreement, Prodisc is to manufacture the rear-projector screens and ViewSonic is to market the final product. Prodisc will start producing the screens at the end of this month, with output of 10,000 sets now expected to double next year.
But amid all the agreements and announcements, nowhere was there any mention of Prodisc's main product, recordable compact discs. That's because in a mature CD-R market suffering from oversupply, low prices and gross profit margins from CD-Rs down to 20 to 30 percent, Prodisc is looking to diversify into more advanced and more profitable products, said Hsu Wei-che, an electronics analyst at Taiyu Securities.
"It's using its own technology to develop other products," said Hsu.
The diversification will transform Prodisc's revenue base. This year, CD-Rs will account for 80 percent of revenue, said Jay Chang, assistant vice-president of the financial department at Prodisc. Next year, about 60 percent of the revenue will derive from DVD-RAMs, rear projector screens, and dense wavelength division multiplexers (DWDM), he said.
Mass production of the new products will begin in the second half of this year and clients have been queuing up to make orders. Before ViewSonic, Prodisc had received orders for its rear projection screens from Delta Electronics Inc and Optima Corp. Hitachi, which is eyeing the potentially lucrative digital TV market in Europe and Japan, is expected to add its name to the list soon.
Revenue from the rear projection screens should come to about NT$100,000 this year and NT$2.5 billion next year, said Hsu. Prodisc should also see strong revenue growth from the sale of its DVD-RAMs, with gross profit margins for the product exceeding 50 percent, he said. "Prodisc's second half year revenue figures should be much better than the first half's," he said.
Prodisc's sales for the first six months of the year rose nearly 89 percent to NT$2.54 billion. The company is expecting net sales for the year of NT$7.6 billion, and a net income of NT$2.2 billion, or NT$8.2 per share. "It won't reach that figure," said Hsu, "but it will be close; about NT$2 billion."
With the introduction of the new products and the expected strong demand for DVD-RAMs in particular, next year's net profits should be better, said Hsu. "We're still observing the performance of the rear projection screens and the DWDMs though," he said.
Prodisc's share price rose 6.83 percent to NT$133 yesterday on turnover of 10.52 million shares, the highest in almost a month.
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