Blu-ray win may not halt slowdown

Sony Corp Chairman Howard Stringer's triumph over Toshiba Corp may not be enough to prevent earnings growth from slowing.

Morgan Stanley and Mitsubishi UFJ Securities Co say they don't plan to raise forecasts for Sony after Toshiba, the leading promoter of the HD DVD format, on Feb 19 said it will shut the business for high-definition video players, surrendering to Sony's Blu-ray. Sony's profit will rise 3.7 percent in the 12 months ending March 2009 after almost tripling this fiscal year, according to the average of 20 estimates compiled by Bloomberg.

While Stringer will try to capitalize on winning the entertainment industry's biggest technology competition in two decades, analysts say a stronger yen and weakening US demand may hinder earnings gains. Blu-ray player makers led by Samsung Electronics Co and Matsushita Electric Industrial Co may challenge Tokyo-based Sony's ability to dominate in the $22 billion market for DVD machines.

"Ironically, Sony built up a circle of Blu-ray supporters and lowered the entry barrier, so now other makers can compete with the company on an equal footing," said Tatsuya Mizuno, director at Fitch Ratings in Tokyo. "Competition will increase and prices will fall."

Blu-ray uses costlier technology to pack more information into less space than HD DVDs to provide higher video resolution. Blu-ray discs can store 50 gigabytes of data, while HD DVDs can hold 30 gigabytes, or six times more than conventional DVDs.

The HD DVD format is backed by 135 companies, including Microsoft Corp, while Matsushita is among the 176 members of the Blu-ray Disc Association, according to both groups' websites.

Mizuno said Blu-ray royalty payments are too small to boost profit, without providing a figure. Sony doesn't own the technology and members will share royalties, said company spokesman Masayo Endo, declining to provide figures or elaborate on revenue sharing.

Sony rose 0.8 percent to 5,100 yen at the 1:12 pm on the Tokyo Stock Exchange, while Toshiba gained 3.1 percent to 820 yen. Before yesterday, Sony shares rose 4.3 percent this week on speculation Toshiba's exit may spur high-definition machine sales by removing uncertainty over which technology would prevail.

During the 2007 holiday season, high-definition players comprised less than 10 percent of total DVD sales in the United States at "a time of heavy promotion and aggressive pricing", said Paul Erickson, director of DVD research at DisplaySearch, a unit of NPD Group Inc.

Tokyo-based Toshiba's withdrawal marks the first major triumph for Stringer since he became Sony's chief executive officer in June 2005. Stringer failed to crack the dominance of Apple Inc's iPod music players, and sales of Sony's PlayStation 3 game console, which comes equipped with a Blu-ray drive, have lagged behind those of Nintendo Co's Wii.

The PlayStation 3 has lost to the Wii in US sales in every month but one since the players were introduced in November 2006, according to NPD. The iPod became the best-selling digital music player after its introduction in 2001, supplanting Sony's Walkman.

Still, Blu-ray's inclusion in PlayStation 3 machines helped Sony's format take the lead. Before the PS3's introduction, HD DVD movies accounted for 64 percent of high-definition format sales in the US, according to researcher Nielsen VideoScan. Blu-ray now accounts for 65 percent.

Agencies

(China Daily 02/22/2008 page16)