***Taiwan's CD-R Industry Stages Protest Against Philips' Royalty
Philips made an announcement on its website that it has cancelled
its CD-R licensing to Ritek. This has provoked anger from the
Taiwanese CD-R industry. The issue of royalty payments has not
only adversely affected the share prices of related manufacturers
in the short run, but now the industry must face the potential
for long-term damage.
The issue started with Taiwan's manufacturers previously agreeing
to pay Philips around US $0.08 or 3% of the price tag of 330 yen
per CD-R disc, whichever is higher. However, the sluggishness in
the fourth quarter of 2000 led to the price falling to US $0.22-
0.25 and sometimes dropping below production cost. Manufacturers
already suffering losses could not afford the high royalty
payments.
Some publicly listed CD-R companies in Taiwan tried to negotiate
with Philips in the hope of lowering the royalty payment to 3%
but Philips maintained the royalty levels. Accordingly, Taiwan's
makers looked to the Fair Trade Commission (FTC) to fight against
these high royalties.
On January 11, the FTC announced that Philips, Sony and Taiyo
Yuden had violated Taiwan's Fair Trading Law. Philips immediately
declared it would end its licensing to Ritek, the leading CD-R
maker in Taiwan, in what is seen here as a warning to Taiwan.
According to manufacturers' estimates, Taiwan's CD-R disc
shipments account for 70-80% of the global market, with Ritek
making approximately 200 million CD-Rs per month, indicating
Taiwan's importance to the market. The root of price competition
within the CD-R industry is excess capacity as more and more
manufacturers in Taiwan scrambled to cash in on the market.
Without strong R&D ability, it is felt that Taiwan needs to pay
significant amounts to patent owners before it can begin
production. Only being able to compete on price does not bode
well for the long-term development of Taiwan's CD-R industry,
according to those in the industry.
Wave Issue 0108 2/8/01 Article 1-02