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February 19, 2008

NEW: Toshiba quits HD DVD business

Decision comes araly Tuesday, handing victory in format battle to Blu-ray disc technology

By Yuri Kageyama

TOKYO — Toshiba's decision to no longer develop, make or market high-definition HD DVD players and recorders will mean consumers can start feeling more confident about buying the victorious rival technology — a Blu-ray disc player.

Analysts say competition is expected to heat up among the manufacturers of Blu-ray players and recorders, which include Japanese makers Sony Corp., Matsushita Electric Industrial Co. and Sharp Corp. as well as Samsung Electronics Co. of South Korea.

In making the announcement, Toshiba Corp. President Atsutoshi Nishida said he wanted to avoid confusion among consumers.

The decision was relatively quick, coming just several years after the competing technologies arrived.

In the last video format battle, between VHS, backed by Matsushita, and Sony's Betamax in the 1980s, it took a decade before Sony stopped making new Betamax products.

"We concluded that a swift decision would be best," Nishida said, appearing proud and unapologetic.

For some consumers, no apology was necessary.

"I came right away," said Takayuki Hara, who was eagerly looking at the latest Blu-ray players at Tokyo's Bic Camera electronics store as soon as he heard the news of Toshiba pullout.

"I'd been waiting, and now I'm shopping around for the latest Blu-ray machine," said Hara, 29, who works for a food company.

Toshiba's Nishida said he realized Toshiba had been beaten when it failed to win Hollywood backing. Last month's decision by Warner Bros. Entertainment to release movie discs only in the Blu-ray format was the definitive blow, he said. It was joining Sony Pictures, Walt Disney Co. and News Corp.'s Twentieth Century Fox.

"That had tremendous impact," he said. "If we had continued, that would have created problems for consumers, and we simply had no chance to win."

Nishida, who stressed HD DVD was a good technology, tried to assure the estimated 1 million customers, including some 600,000 in North America, who already bought HD DVD machines, by promising that Toshiba will continue to provide product support for the technology.

Neither Sony or Matsushita would disclose the global sales numbers for Blu-ray machines. But the shift in Blu-ray's favor became more decisive during the critical holiday shopping season.

Nishida voluntarily brought up the possibility of class-action lawsuits in the U.S. as he fielded questions from reporters, acknowledging that the idea of disgruntled HD DVD owners had occurred to him.

Class-action lawsuits are fairly rare in Japan, and owners in Japan of HD DVD machines total just 30,000. Nishida denied the company shared in any liability as it had no say in the format of future movies.

Both HD DVD and Blu-ray deliver crisp, clear high-definition pictures and sound, which are more detailed and vivid than existing video technology. They are incompatible with each other, and neither plays on older DVD players.

Nishida said it was still uncertain what will happen with the Hollywood studios that signed to produce HD DVD movies, including Universal Studios, Paramount Pictures and DreamWorks Animation.

Toshiba said shipments of HD DVD machines to retailers will be reduced and will stop by the end of March.

HD DVD supporters included Microsoft Corp., Intel Corp. and Japanese electronics maker NEC Corp.

Microsoft's Xbox 360 game machine can play HD DVD movies, but the drive had to be bought separately, and Nishida said about 300,000 people have those.

Personal computers with HD DVD drives total about 300,000 worldwide, including 140,000 in North America and 130,000 in Europe, he said.

Although the format defeat is an embarrassment to Toshiba's image, the quick exit is expected to lessen the potential damage in losses from HD DVD operations.

Goldman Sachs has said pulling out would improve Toshiba's profitability between $370 million and $460 million a year.

Nishida said the damage to Toshiba's bottom line, from such costs as leftover inventory, was still uncertain.

At the same news conference, Toshiba said it will spend more than $15.7 billion for two plants in Japan to make sophisticated chips called NAND flash memory, which are used in portable music players and cell phones. Production there will start in 2010.

With movie studios increasingly lining up behind Blu-ray, retailers also began to stock more Blu-ray products.

Friday's decision by Wal-Mart Stores Inc., the largest U.S. retailer, to sell only Blu-ray DVDs and hardware appeared to deal a final blow to the Toshiba format. Just five days earlier, Netflix Inc. said it will cease carrying rentals in HD DVD.

Several major American retailers had already made similar decisions, including Target Corp. and Blockbuster Inc.

Also adding to Blu-ray's momentum was the gradual increase in sales of Sony's PlayStation 3 home video-game console, which also works as a Blu-ray player. Sony has sold 10.5 million PS3 machines worldwide since the machine went on sale late 2006.

Recently, the Blu-ray disc format has been gaining market share, especially in Japan. A study on fourth quarter sales last year by market researcher BCN Inc. found that by unit volume, Blu-ray made up 96 percent of Japanese sales.

Once the balance starts tilting in favor of one in a format battle, then the domination tends to grow and become final, said Kazuharu Miura, an analyst at Daiwa Institute of Research in Tokyo.

"The trend became decisive I think this year," he said. "When Warner made its decision, it was basically over."

Trading in Japan, Toshiba's stock slipped 0.6 percent Tuesday to $7.63 after jumping 5.7 percent Monday amid reports that a decision was imminent. Sony shares climbed 2.2 percent $46 after rising 1 percent Monday.

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