Standoff on CD-R royalties nears end in Taiwan

After several months of negotiations, Taiwan's top recordable compact disk (CD-R) maker is nearing a deal with Philips on royalty payments, signaling an impending conclusion to a drawn-out battle between Philips and the island's numerous disk manufacturers.



Striking a deal among the companies has been anything but easy. There have been accusations of price gouging, counterclaims of royalty evasion and complaints filed with the Taiwan government, sources familiar with the companies said. In January, Taiwan's Fair Trade Commission (FTC) levied $430,000 in fines against Philips, Sony Corp. and Taiyo Yuden Co. Ltd. for collusion in charging high royalty fees and abusing their CD-R market positions, according to an FTC official.

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At stake, said analysts, are the traditionally high margins of CD-R makers. "If you look at the financial reports for CD-R makers last year, they had gross margins of 50 percent, so they cannot get used to seeing this reduced," said Charles Yang, a disk industry analyst for Entrust Securities.

A few months ago, those margins were under assault as average selling prices declined uncomfortably close to manufacturing costs '” less than 18 cents per unit. Tack on a royalty, and the companies claimed they would lose money. "At the end of last year the average selling price was only around 20 cents. So our company suffered a lot and most of the manufacturers cannot pay the royalties to Philips because it amounts to more than half the cost," said a spokeswoman for CMC. "Normally for the royalty issue, most of the industries pay around 3 percent for the final goods. However for CD-R we had to pay more."

Philips said that assuming a deal could be reached with Ritek, terms would be same as for all other licensees. "The royalty price will not change. It has to be the same deal for everyone," the Philips spokeswoman said.

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Source: Eet.com

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