Sony’s demand for CD-ROM and CD-RW licensing fees from Lite-On IT has sparked concern for the fate of Taiwan’s DVD drive production lines. DVD drives are now averaging US$10 a unit, not including licensing fees for other technology obtained from overseas companies. The average quoted price for a 16x speed DVD-ROM drive is currently NT$2,000. The lowest price for a 12x speed drive is between NT$1,550 and NT$1,660 – the licensing fee of US$10 already makes up more than 25% of this price. Industry insiders point out that when 12x DVD-ROM drives were going for US$50, companies were still able to pay the fee without too much heartbreak. But now that DVD-ROMs are replacing CD-ROMs as the mainstream optical storage peripheral for PCs, the unit price for a DVD-ROM drive is dropping fast and may be down to US$20 by 2002.

Ten companies in the DVD Forum have created three separate camps for their particular technical contributions. Philips, Sony and Pioneer have grouped together in the 3C camp; Toshiba, Hitachi, Matsushita, JVC, Mitsubishi, and Time Warner are in 6C; and Thomson is in 1C. The complex array of DVD standards and related technology has become quite a problem for manufacturers, who are not only forced to pay fees to 3C, 6C and 1C – a total of US$10 – but are also pulling money out for the use of other patented technology as well. Many Taiwanese OEMs are also producing DVD-ROM drives for members of the DVD Forum, so they must be very punctilious when it comes to paying the due amount.

According to sources, the average gross margin for DVD-ROM drives – not including licensing fees – is now under 15%. In response, many Taiwan companies have developed their own technology to increase laser reading speeds, and they have done all they can to lower production costs, but market trends seem to be moving too fast. The best solution to date has been moving production lines to China, where companies are not only enjoying lower production costs, but are also finding it easier to avoid many licensing fees.