Thanks to mounting shipments of DVD player chips in China, ALi Corp.'s May revenue recorded a five-month high of NT$633 million. The company projects it will bag half of the eastern Chinese market for the chip by the end of 2002.

In May of this year, ALi delivered nearly two million DVD Servo and MPEG II chips combined. Notebook computer chipsets contributed 35 percent of its May revenue and desktop computer chipsets accounted for only a minor portion. Consumer chips represented 55 percent of the company's revenue in May.

DVD Servo, DVD-ROM and CD-RW chips have become centerpiece products on the production lines at Ali's optical-storage business unit after its reorganization early this quarter.

The company is ready for production of 20x DVD-ROM player chips, and has landed orders from Taiwan player makers.

Shipments of the chips are scheduled to begin some time in June 2002. Deliver of the company's 48x CD-RW drive chips will start next quarter.

Although the chip designer landed contracts for PC chipsets for HP notebook computers from Compal Electronics Inc. late last quarter and increased orders from Toshiba Corp. for chipsets supporting Pentium 4 processors, its May shipments of PC chipsets posted a lower-than-expected 200,000 sets because of the lukewarm PC business.

While ALi is tapping the Chinese market with an all-out effort, MeidaTek Inc., the world's largest optical-storage chip supplier, has started deployment in the Chinese to attack ALi.

Despite MediaTek's May revenue falling a staggering 23 percent from April, the company emphasized its May shipments of DVD-player chips was on par with April volume.

Retailers of the chips in the Chinese market point out that competition between the two suppliers in that market has become more intensive.

However, the two companies have not yet launched undercutting measures, as they remain the monopoly suppliers in the Chinese market at present.

The market is tipping in favor of Chinese companies like Sichuan Changhong Appliances Co., which says the 6 million DVD players it makes a year give it 15 percent of the global market.

Chinese DVD companies are mostly using computer chips made by Taiwan companies such as MediaTek and Acer Laboratories Inc. due to cheaper costs.

Another Taiwan chip designer, Acer, registered a first-quarter profit of NT$95 million in the production line on rising demand from China and Korea.

There are growing numbers of Chinese DVD firms, including Qingdao Haier Co., the nation's biggest household appliance maker, and Konka Group Co., the second-largest television maker. The development makes Taiwan DVD player chip makers confident about the Chinese market in the following years.

However, there is some weak potential threat to the Chinese DVD player makers in the long run, that is, the problem of royalty payments. If it does not consider the problem, Chinese manufacturers of DVD players will be competitive in the long run because they carry much lower production costs compared to global rivals.

According to Chinese resources, a growing number of Chinese DVD makers agreed to pay patent fees to use the technology. The payment will surely slash their competitive edge in the long run.

Source also said some Taiwan DVD makers are in talks with their Chinese counterparts to create a new DVD standard that would allow them to skirt patent fees also.