Never has there been a Taiwanese storage-media technology startup so aggressive as Optodisc Technology Corp., which has betted aggressively on the development of rewritable-DVD disk technology in partnership with a government-backed lab over the past three years.

Established in 2000, Optodisc has quickly consolidated a strong technological position in the rewritable-DVD disk arena since. Rather than beginning with first-generation DVD-RAM disks, which have a 2.6-gigabyte storage capacity, it directly focused on second-generation DVD-RAM disks, which have a storage capacity of 4.7GB.

After a year of development work with the Opto-Electronics & Systems Laboratories (OESL) of the government-backed Industrial Technology Research Institute (ITRI), Optodisc upped the ante again with the rollout in January this year of 8.5GB dual-storage DVD-RAM disks; I.e., with storage layers on each side. An 8.5GB disk can store four hours of high-quality video, or more than double the capacity of a 4.7GB disk.


Risk-Taker's Rewards


"We really surprised OESL when we decided to join their early programs on the disk technologies, since most domestic manufacturers were then reluctant to invest in programs until they had already started to bear fruit," recalls Optodisc president Jasper Chao.

This same risk-taking attitude could also be seen in Chao's decision to open a rewritable-DVD disk business from scratch. However, it was a well-considered risk, based on a year of studying DVD-RAM technology, he says.

Chao saw an opening in the nascent market for rewritable-DVD disks since many of his competitors were specializing in CD-R disks and would need to make huge investments to turn out rewritable DVDs, which he says have only a 5% process overlap with CD-R disks. "Essentially they have to compete with us on an equal footing," Chao says.



Even the largest suppliers in the global CD market, Ritek Corp. and CMC Magnetics Corp., lag Optodisc in dual-layer 8.5GB DVD-RAM technology, though they have commercialized 4.7GB DVD-RAM disks, according to an Optodisc analysis.

Chao was also encouraged to enter the rewritable-DVD disk business upon realizing the powerful advantages of the new media over CD-Rs. A DVD-RAM disk can be rewritten 100,000 times and a DVD-RW disk around 1,000 times. Their storage capacities are also exponentially larger than those of CDs. "I forecasted in 1999 that rewritable DVD disks would replace all other video/audio media in the near-term future due to their superior merits," he says.

It was in 1999 that Chao first learned about rewritable-DVD disks, when a friend at Matsushita Electric Industrial told him of the Japanese consumer-electronics giant's rollout of the world's first DVD-RAM drive. Matsushita is now a prime setter of formats in the DVD-RAM market; it co-unveiled the first-generation 2.6GB DVD-RAM format with Royal Philips Electronics in 1998 and second-generation 4.7GB format a year later.

Chao looked into the disk business and felt that it was far less risky than the PC-hardware business. Then in his 40s, he had spent nearly 20 years in the PC industry before opening his own business. He used to be a factory manger at Umax Data Systems, vice president for R&D at Mitac International, and COO at CTX Electronic Co., Ltd.

One of the advantages of disks over PC hardware, from a manufacturer's perspective, is that the former only needs simple logistical channels while the latter depends on complex assembly lines and component inventories. A disk manufacturer has no components except chemical materials.


Money Magnet


When he approached J.M. Wang, a co-founder of Umax Group, about investing in his new venture, Wang immediately promised to join in.

In April 2000, the two men and other investors organized the company with a capitalization of NT$300 million (US$8.6 million at US$:NT$35), raised mostly from acquaintances. In 2001, the company reported a loss of NT$50 million (US$1.4 million) on revenue of NT$25 million (US$714,000). The following year, the company's loss was narrowed to NT$17 million (US$486,000) on revenue of NT$300 million (US$8.6 million). "This year, we project an EPS [earnings per share] at NT$2 and we can increase revenue to NT$1 billion (US$28.6 million), assuming our January to May revenue can reach NT$300 million," Chao estimates.

Attracted by the bright prospects of the company, institutional investors, many of them venture-capital firms, have poured money into Optodisc during its second and third capital-raising programs. Last year, the company increased its capitalization to approximately NT$800 million (US$23 million) from NT$580 million (US$17 million) in 2001. The investors included Chiao Tung Bank, which owns a 9.21% stake, making it the largest institutional shareholder. Among others are a Citibank-run VC fund, the Japan Asia Fund, and Chailease V.C. Co. Ltd. "We turned down many investors since our new shares were completely subscribed," Chao reports.



The senior Optodisc executive attributes the hefty growth of his company's bottom line to a well-planned marketing strategy and impressive technological advancements. From the very beginning, the company has targeted end-users and PC suppliers giving free disks as its major customers, avoiding competition with local suppliers in the data-duplication market, where corporations are major buyers. "The former two markets are bigger in base terms, but corporate buyers are more financially capable," Chao explains.

Today, the company is the largest supplier of DVD-RAM and DVD-RW disks in Taiwan, with monthly output of 500,000 units, respectively. It turns out around 300,000 DVD+RW disks and two million DVD-R disks a month. Many of the world's first-tier storage-media suppliers including TDK, Mitsubishi and 3M have contracted Optodisc for disks. "They prefer to place orders with us because we offer the world's widest range of DVDs," Chao notes.

Since June last year, Optodisc's output has increased at a 20% pace every month. To cope with the thriving market demand, the company has opened a second factory and is constructing two more plants. It has also been approved to set up R&D and production facilities at the Hsinchu Science-based Industrial Park. All of these projects will together increase the company's factory area to 60,000 square meters, triple the current figure. It will also triple its work force from 100 now by the end of this year.


Staying in Front


Chao is proud of his company's 30-specialist R&D team, which he says has developed some of the world's top DVD-disk technologies, such as next-generation optical disks using the industry-standard blue-laser recording system (Blu-Ray). A Blu-Ray laser disk can store 25GB of data. Optodisc unveiled its disk early last year at the 2002 International Consumer Electronics Show in Las Vegas.

Optodisc has consistently invested heavily on R&D since its establishment, which was the major reason behind the company's operations deficit in the start-up stage. Last year alone, the company plowed NT$200 million (US$5.7 million) into R&D initiatives. "These efforts have earned us a leading position in the global storage-media industry," Chao says. Philips, Pioneer, and Matsushita have authorized Optodisc to use their format specifications.

Chao believes that the DVD storage-media market will rise sharply over next few years. He predicts that the Dual DVD-drive alliance spearheaded by NEC, Sony, and Sanyo, as well as the Multi-drive alliance dominated by Panasonic, Toshiba, HLDS, and Samsung, will very likely roll out machines compatible with Dual and Multi formats. Dual-type machines double as DVD-RW/-R and DVD+RW/+R drives while Multi machines run DVD-RAM and DVD/-RW/-R formats.

Another driving factor for the DVD-R disc industry is falling prices. "I estimate that DVD-RAM disks will gain more market when their prices drop to around NT$100 (US$2.85) and DVD+RW and DVD-RW discs will become more popular at around NT$50 (US$1.4)," Chao says, based on the past experience of VHS tapes. At present, a DVD-RAM disk averages US$5.5 and a DVD+RW disk and a DVD-RW disk average US$4.

As the market matures, Chao's company is in an extremely strong competitive position. "The competition is just starting and we have gained the upper hand with our wide range of products and cutting-edge technologies," he says.