| BUSINESSWEEK ONLINE : AUGUST 9, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- ASIAN BUSINESS
Squeezing New Life out of an Old Technology (int'l edition) The Taiwanese are milking cheap CD-Rs until DVDs catch on  It's an industry threatened with obsolescence and battered by plunging prices. A business to avoid? Don't tell that to the Taiwanese. Two Taipei companies are grabbing control of the market in recordable compact disks (CD-Rs) and turning it into one of the island's hot businesses. In the process, they are showing how Taiwan's high-tech players venture boldly into fields rivals have already fled.CD-Rs are the disks PC owners use to store and back up data or music--the recording machines are separate devices that get hooked to the back of the PC as a peripheral. Taiwan's Ritek Corp. and CMC Magnetics Corp. are cleaning up making these disks. CMC expects profits to grow this year from $66 million to $218 million on revenue of $469 million. Ritek's profits should double this year, to $156 million. No wonder their executives are gloating. ''This growth period will continue,'' says Ritek President Gordon Yeh. ''There is still a lot of room.'' Y2K BOOST. Now, CMC and Ritek divide about 60% of the world market for CD-Rs between them. ''It's all going over to Taiwan,'' says Wolfgang Schlichting, who follows recording technology for International Data Corp. The Taiwanese were not supposed to be this successful. After all, by this time, computer users were supposed to be storing and backing up data with recordable digital video disks (DVDs), which deliver vastly more memory than CDs. The problem is the high cost of DVD media and drives. By driving down prices, the Taiwanese have extended the life of CDs, which have plenty of capacity for most people. And they're certainly cheap--less than $1 a disk, down from $8 a few years ago. So demand is exploding, from 680 million CD-Rs last year to up to 1.7 billion this year. Thus, executives at CMC and Ritek think that recordable CDs have staying power. In 1996, they saw the price of compact disk recording machines dropping dramatically as the cost of technology fell. While recession-hit Japanese manufacturers hung back, waiting for the arrival of DVD technology, CMC and Ritek, already experienced in the CD-ROM business, invested heavily in recordable CD production lines. Now, the two companies have a lot more capacity than the Japanese, the former market leaders. The need to back up files because of the Y2K bug and proliferating computer viruses is making the CD format especially desirable: It can't be overwritten. Internet downloads, including newer formats such as digital video and music, are also gluttons for storage space. ''CD-Rs are replacing cassettes, videotape, and floppy disks, all at the same time,'' says Bob Wong, chairman of CMC. JAPANESE SURRENDER. The Taiwanese are now forcing other diskmakers out of the game. Ritek and CMC both say they get 30% more efficiency from manufacturing equipment by using robots and adding other innovations. Instead of competing, Sony and Philips are now outsourcing production of their brand-name disks to CMC and Ritek. Other competitors in Taiwan are sure to go after CMC and Ritek. ''The higher they go, the more competition they attract,'' says Don Floyd, an electronics analyst at Credit Lyonnais Securities. However, the two leaders have a headstart of several years in achieving the quality and scale necessary to manufacture efficiently. Jack Huang, marketing vice-president at Ritek, says that his company paid for most of its production-line machinery back when CD-R prices were higher. Now, with its production lines mostly depreciated, they just spin out profits. Still, the prospect of DVD makers finally making a breakthrough will force change on both companies. The Taiwanese are getting ready for competition from DVDs by investing in technology licenses and research and development. Ritek President Gordon Yeh says that his company has flexible production lines that can be switched over to DVDs, and he is teaming up with Dutch electronics giant Philips to secure the needed technology. CMC is doing the same with Pioneer of Japan. The transition to the next technology will be another test of Taiwanese nimbleness. By Jonathan Moore in Taipei _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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