Chip Makers Benefit from DVD Format War
Sony and Toshiba are fighting to set the industry standard for the next generation of DVD players, but the spoils may go to makers of memory chips, like Samsung Electronics.
The home theater industry’s biggest format war in two decades, pitting Sony’s Blu-ray system against Toshiba’s HD DVD technology, will increase demand for dynamic random access memory semiconductors, or DRAMs, which until now have been mainly used in personal computers. The new DVD players use about 16 times as much memory as current machines.
Shipments of high-definition players will climb to 6.2 million next year from 800,000 this year, according to the research firm Isuppli, creating a new income stream for Samsung and Hynix Semiconductor, both of South Korea, and Micron Technology, of Boise, Idaho. That may set the stage for a stock rally in the $26 billion DRAM industry, once consumers choose a victor in the format fight, said Yoo Jung Sang of PCA Investment Trust Management in Seoul.
“DVDs are definitely a promising market,” said Yoo, who is PCA’s chief investment officer. “But issues regarding the standard need to get resolved first.”
Yoo, who owns Samsung and Hynix shares, said that he was bullish on memory-chip stocks, even though the DVD format battle might retard growth in DRAM sales for the machines by as long as three years.
Rising prices of semiconductors have helped shares of memory chip makers rebound from a second-quarter slump. Samsung, the world’s biggest maker of DRAMs, has risen 18 percent in the past three months. Hynix is up 34 percent, while Micron has risen 18 percent. In the same time, the Bloomberg World Semiconductor Index rose 11 percent.
DRAMs, the most widely used type of memory chip, accept and return information in less time than it takes to access a disk. In DVD players, the chips act as a buffer between the disk and the screen to ensure that movie images are delivered smoothly, without the picture’s freezing or becoming distorted.
The Blu-ray disc can store at least five times as much data as a standard DVD, and Toshiba’s HD DVD can contain at least three times as much content, making pictures crisper and sharper.
High-definition DVD players sold by Samsung and LG Electronics use 512 megabytes of DRAM, according to spokesman at the two companies. Regular DVD players use about 32 megabytes.
Some consumers are holding off buying a next-generation DVD player until they know which technology will be more popular.
The standoff is a repeat of two decades ago, when the VHS videotape format, created by Matsushita Electric Industrial’s Victor of Japan, beat Sony’s Betamax as the standard.
Toshiba got a head start by selling HD DVD players, beginning March 31, almost three months ahead of the first Blu-ray machine.
Toshiba players are also cheaper. The HD-A1 player sells for as little as $400, or about half as much as Samsung’s BD-P1000, the cheapest player using Sony’s Blu-ray discs, according to Amazon.com.
Sony’s setbacks with the Blu-ray deepened last week, when the company, based in Tokyo, delayed the European debut of its PlayStation 3 game console by four months, citing problems making blue diode lasers, the key component that reads information on Blu- ray disks.
Yet Sony is betting that it has an edge because it has recruited as allies the largest manufacturers of the DVD players, including Matsushita and Samsung, and plans to introduce its own brand of player. Toshiba’s supporters include Microsoft, whose computer software will support the HD DVD format.
Even before one side prevails, the chip makers may fill the gap with rising demand in the traditional PC market and new uses for the chips in products like mobile phones.
Hwang Chang Gyu, the president of Samsung, said recently that the company expected record chip sales this quarter and possibly extending into next year. “The DRAM market looks good until 2008 or 2009,” Hwang said in Seoul. “The next-generation DVD market provides a bright outlook.”