NWA-PCUG Newsletter Article
HP ditches add-on CD-RW market
By Michael Kanellos, CNET News.com, November 2001
Copyright 2001 Yahoo! and CNET
http://dailynews.yahoo.com/h/cn/20011010/tc/hp_ditches_add-on_cd- rw_market_1.html
Thursday October 11 02:00 AM EDT

Although it is No. 1 in sales of add-on CD-rewritable drives, Hewlett- Packard is exiting that market so it can better concentrate on the emerging, and potentially more profitable, demand for recordable DVD drives.

The Palo Alto, Calif.-based computer giant will release no more new models of CD-RW drives and will stop shipping add-on CD-RW drives in the early part of 2002, Dean Sanderson, HP's lead product manager for DVD+RW drives, said Wednesday.

HP will continue to bundle CD-RW drives in its computers for an indefinite period.

In many ways, HP is getting out while the getting is good. Most consumer PCs now come with a built-in CD-RW, which has severely dented the add-on market.

"Seventy to 80 percent of consumer PCs have it," Sanderson said. By contrast, only about 50 percent of PCs included a CD-RW drive in the fourth quarter of 1999.

HP has about 20 percent of the add-on market, he said, although for a brief time in the middle of 2000 it commanded about 60 percent.

Price competition has also become fierce. When CD-RW drives emerged in 1995, they cost $1,200. Now, consumers can pick up drives for $99 to $249, including rebates.

Most CD-RWs end up in the consumer market. Only 5 percent of corporate machines include a recordable CD drive.

The turning point for the market occurred in the fourth quarter of last year, Gartner analyst Mary Craig said. At the time, PC manufacturers, faced with stagnant sales, began canceling shipments for internal CD-RW drives. These drives were then repackaged and sold in stores as add-on peripherals.

"There was tremendous overproduction in 2000," she said.

In addition, external DVD+RW drives, which start at $599, likely will have higher margins, Craig said, although it will take two to three years to build a mass market.

Sanderson was more optimistic.

"There are millions of digital camcorders and digital cameras. And there have not been ways to easily edit that video," he said. "We'll see a similar price decline and volume increase."

Analog conversion cards also permit consumers to transfer video from standard cameras onto DVD+RW drives, he noted. And recordable DVD drives allow consumers to record CDs too.

HP came out with its first DVD+RW drive in August. The last new CD-RW models from HP, meanwhile, were released this month, Sanderson said.

"There will probably be a Pavilion PC this holiday season that has a DVD recorder in it," he added.

HP's exit is unlikely to have a huge effect on the company's internal organization. Its drives are produced by component manufacturers such as Teac, Craig said. Similarly, the company's DVD drives will come from contractors. HP largely concentrates on overseeing technical specifications, marketing and the bundling of software.

"They've always done a tremendous job marketing," she said.

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