E. I. du Pont de Nemours and Co., the Delaware-based chemicals giant, and N. V. Philips, the Dutch electronics concern, yesterday announced the creation of a joint venture to produce optical discs -- a product that has sparked new interest in consumer audio and that also offers computers the potential of a new mass memory capacity.
"Du Pont and N. V. Philips are merging all their optical-disc operations and assets into a 50-50 joint venture for the development, manufacture and sale of optical discs for all audio, video and data markets worldwide," said Du Pont Vice Chairman Edgar S. Woolard Jr. Those markets, which include the rapidly growing market for compact audio discs, "provide a potential opportunity of about $4 billion in sales by 1990," Woolard said.
The two companies project that their new venture -- which has neither a name nor a chief executive officer at this time -- will generate annual sales of more than $1 billion within five years. According to Du Pont, this venture is the largest non-oil-related joint venture in the history of the company, which had 1984 sales of $38 billion.
Philips spokesmen said that the venture gives the their global consumer electronics company -- which had 1984 sales of $16 billion -- new access to the U.S. market and a window into data-storage technology for large computer systems. Du Pont's Woolard maintained that it "gives us an opportunity to get into a whole new field of activity" in industrial and consumer electronics by exploiting Du Pont's expertise in producing materials such as the plastic that goes into the discs.
By 1990, the venture is expected to have capital investment in excess of $500 million, a $60 million annual research and development budget and 3,500 employes worldwide. The assets of the new venture include what the two companies describe as "the world's largest compact-disc manufacturing facility" in Hanover, West Germany; a video optical-disc operation in England, and Du Pont's and Philips' development facilities. The two companies also plan to launch a compact-disc plant in North Carolina next year.
Currently, the fastest growing segment of the optical-disc market is in compact audio discs for music afficianados. Since the introduction of compact audio disc systems three years ago by Sony Corp. and Philips, disc sales have shot up to an anticipated 50 million this year -- a market value of close to $700 million. The demand for compact-disc players has skyrocketed as prices have dropped from more than $1,000 to about $250.
In fact, industry analysts assert that the supply of audio discs will fall short of demand by between 35 and 50 percent this year. Consequently, the joint venture intends to double disc production immediately at the Hanover plant, which currently manufactures approximately 25 million discs a year, while the new U.S. plant is under construction.
"Our objective is to get ourselves established as the largest compact-disc supplier in the world," said Du Pont's Woolard, who added that basing disc operations in the United States should give the venture a competitive advantage over Japanese electronics companies with disc pressing facilities overseas. Currently, Minnesota Mining & Manufacturing Co. and Sony Corp. have disc-pressing facilities in the United States.
Data-processing companies also are enthusiastic about the optical disc as a computer-memory device. Because optical discs can store data more efficiently that existing discs, which rely on magnetic media, they are being touted as ideal for mass data storage. However, certain technical difficulties must be surmounted before optical discs are used more widely in data systems.
Du Pont said it is working with major computer companies to develop proprietary optical data storage systems, activities that will belong to the joint venture. The two companies project that the optical-disc market in 1990 will be split evenly between data storage and compact audio discs. Some analysts predict that half of the recorded-audio-entertainment market will be made up of audio disc sales by the turn of the decade. Officials for both companies said that serious negotiations for the venture had been under way for the past six months.