After posting a loss of NT$3.8 billion (US$114 million at NT$34:US$1) last year--the largest since its stock-market listing in 1996--Ritek Corp. is predicting that the launching of new products will return it to profitability in 2003.

Ritek is the world's largest maker of optical disks. Its 2002 loss was primarily the result of a collapse of the CD-R market in the face of overcapacity worldwide.

Market researchers expect the DVD-R market to continue its sales take-off through the end of this year as the newer product, which has a much bigger storage capacity than the CD-R and is recordable, replaces the CD-R as the standard storage-media disk. This trend will help Ritek.



Citing a Japanese study, Gordon Yeh, Ritek's president, says that the global DVD-R market is expected to soar from 110 million disks a year in 2002 to 400 million disks this year. The figure is forecast to skyrocket to one billion units next year and two billion in 2005. Hewlett-Packard is even more optimistic, predicting a world market of 500 million disks this year and two billion next year.

The CD-R market seems to have topped out at seven billion disks. These disks are now sold at only US$0.19 to US$0.23 each, while DVD-Rs disks have been quoted recently at US$1.2.

Yeh claims that his company has been recognized by the Japanese market research organization Fujiwara as the world's largest supplier of DVD-R and DVD-RW disks in the first quarter of this year, with a 20.4% share of the global market. The two kinds of DVDs currently account for around 30% of the company's revenue, which last year totaled NT$19.2 billion (US$565 million).


Encouraging High Margins


The high margins available with DVDs has inspired the company to boost monthly production capacity to 20 million disks, from the current 12 million, by the end of the year. Additional capacity of 10 million disks a month is to be installed next year.

"This expansion will not cost us too much," Yeh says, "because most of our production lines for high-performance CD-Rs are available for the manufacturing of DVD-Rs." He estimates that these more advanced products will account for half of the company's total revenues by the middle of next year--if the market keeps growing and prices move downward only slowly.

The company recently issued convertible corporate bonds to raise US$220 million for the development of blue-ray disks, which store six times as much video content as DVD-Rs. The company has also initiated the co-development of nano disks in cooperation with the nano-technology center at National Taiwan University.

Yeh says that his company is the first Taiwanese disk maker to be recognized by the DVD Forum Working Group-II (WG-II) as a contributor to blue-ray disk formats. The company president thinks that local manufacturers have a good chance of becoming industry-standard format-setters for next-generation disks, as they account for 70% of the world supply of optical disks and a large portion of the supply of disk drives.

Yeh goes on to explain that his company's climb out of the red ink will not be on the back of advanced optical disks alone; it has also become involved in display technology and opto-communications, which now absorb 20% and 15% of the firm's business investment, respectively. He predicts that the company's display-technology arm, RiTdisplay Corp., will break even next year and that the opto-communications business will turn profitable shortly thereafter.

RiTdisplay has spent around NT$10 billion (US$294 million) on the development of organic light-emitting diode (OLED) technology, and has taken on Alan Heeger, a winner of the Nobel prize for chemistry, as an outside director.


Organic Advantages


OLED display panels have the advantage of not needing any artificial backlighting, as their organic material is itself illuminating; in addition, they are much thinner than low-temperature poly-silicon TFT-LCDs. These advantages have prompted handset suppliers to adopt OLEDs for their color-screen phones. RiTdisplay believes that a quarter of the 400 million cellphones sold this year will be color-screen models, and that sales of such phones will soar to 300 million next year. This presents exciting market opportunities for OLED display makers.

The company expects to ship OLED units for 2.2 million phones by the end of the year, bringing in revenues of NT$3 billion (US$90 million). "We're tied with Pioneer for the position of world No. 1 in this sector, and we're not afraid of Samsung's entry into the competition because more competitors mean a safer industrial environment," Yeh insists. He predicts that his shipments will double next year.

The company will introduce an active color OLED panel at the end of the year to test the market, but Yeh expects sales to remain limited in the short term. He notes that Pioneer turned to the passive type of product last year, which he believes is more promising.

Ritek's investment in opto-communications focuses on fiber-optic product manufacturing, and transceivers. Researchers at the Photonics Industry & Technology Development Association predict that global output of opto-communications components will rise 25% this year, to US$3 billion, but Yeh remains cautious in his expectations. "There is a chance that the world market for this industry will grow this year," he says, "but the pace will be only moderate."

Ritek'sBusiness Turf
Category	Affiliates
storage media	Gigastorage, Lead Data, U-Teck Media
display panel	RiTdisplay, Taiwan Nano Electro-Optical
opto comm	RiteKom Photonics,Opto Infomax
Source: Ritek