Hewlett-Packard rode the digital music wave to become the No. 1 CD-rewritable drive maker, but analysts warn that the surf may roll over the company's new combo CD-RW/DVD drive.
Analysts' reactions, however, don't appear to concern the Palo Alto, Calif.-based PC maker. HP may just be testing the waters for the ultimate combo drive: one that records DVDs and CDs.
On Tuesday, HP unveiled the CD-Writer DVD Combo 9900ci, its first add-on drive capable of showing DVD movies and playing and recording CDs. The $349 combo drive, which can be added to a PC, goes on sale later this month. It offers speeds of 12X write, 10X rewrite, 32X read and 8X DVD playback.
Combo CD-RW/DVD drives are nothing new. They first appeared as adds-ons at retail in 1999. But sales "have been negligible," PC Data analyst Stephen Baker said.
"Having someone like HP, who is going to put some force behind it, will help raise the visibility of that kind of product," said Baker, who noted that the PC maker leads the retail market in sales of add-on CD-RW drives.
HP had 28.3 percent share of the CD-RW drive market in January as measured in units and 30.7 percent in dollars, according to PC Data. While HP's market share fell 10 points from a year earlier, shipments surged 50 percent. Iomega trailed in January with 19.2 percent share in units and 16.6 percent in dollars. Sony took the third spot with 8.8 percent unit share and 8.2 percent in dollars.
Overall, retail sales of add-on CD-RW drives surged 98 percent in January from a year earlier, with revenue up 58 percent. The average model sold for $194, down 20 percent from the January 2000 price of $242, according to PC Data.
Although HP's marketing muscle and share may raise the visibility of the combo category, "the real question is, what's the benefit for somebody buying one of these drives?" Baker asked. "Right now I don't think there is much of a benefit putting a combo drive in your desktop."
One reason combo drives have faltered at retail is need. "Why would you want a second or third drive in your PC?" Baker asked. "Most people interested in buying this kind of product would be early adopters, and they probably already have CD-RW drives."
Baker also noted that DVD by itself is not very popular on PCs. Only 23 percent of computers sold at retail pack DVD drives, and more than 80 percent of those also offer CD-RW drives.
Ultimate combo drive
But Dataquest analyst Mary Craig said HP might have good reason for getting the combo drive out there, even if sales are expected to be slow.
"There will always be someone that will buy something new, so the drives will sell," she said. "But?this is an important interim step for HP as they get ready for the next step, which is DVD+RW."
HP plans to ship sometime this summer its first DVD+RW drive, which records and plays DVDs and CDs.
"We're definitely talking about shipping it in the summer time frame. The project is on schedule," said David Burks, HP's DVD product development manager.
DVD+RW is HP's latest play to compete with Pioneer's DVD-R drive, which Apple Computer and Compaq Computer offer on select computers.
DVD+RW and DVD-R are competing to become the industry standard for DVD recording.
"HP clearly needs to be seen as competing in the combo market, and their new (CD-RW/DVD) drive gives them sort of a placeholder as they get ready to bring DVD+RW to market," Craig said.
Burks agrees that HP views the combo drive as an important step leading to DVD+RW, which is not compatible with DVD-R.
Pioneer's early market lead could prove insurmountable, particularly if Dell Computer decides to join Compaq in offering DVD-R drives, Craig said, or if HP misses its shipping deadline.
Dataquest projects DVD recording will be a hot technology driving PC sales over the next several years. The market researcher projects 1.8 million DVD-recordable drives will be sold this year, reaching 13.8 million in 2004.
Craig noted that HP's marketing clout could eventually turn the tide against DVD-R if the company is willing to act aggressively.
Pioneer has said the add-on version of its DVD-R drive will carry a manufacturer's suggested price of $950 but sell on the street for as little as $799.
HP must price for the mass market to win," Craig said. "If those drives come out on the shelves at $499 and media under $10, that's what it would take to trump Pioneer."
Burks wouldn't comment on exact pricing. But, he said, "I think we're going to be in a position to really make the analysts happy."