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The 90nm Cell/B.E. package as found in the PlayStation 3, now to be manufactured by Toshiba.  (Source: DailyTech)
Sony gives Toshiba something in return for its troubles -- Japanese Cell chip plants for $835M

A new twist has emerged with the death of HD DVD.  After Warner, Best Buy, Walmart and Netflix jumped on the Blu bandwagon, the fate of HD DVD was already sealed.

Despite the grim news, the principal HD DVD developer, Toshiba Corporation, refused to initially comment on its plans for its HD DVD.  However, as many analysts predicted, Toshiba came out last week and officially surrendered to Blu-ray

Many saw Toshiba's willingness to give up on HD DVD as a logical business decision and perhaps an admission of Blu-ray's superiority.  However, there might be a little more to the story.  Reuters reports that on Wednesday Toshiba and Sony Corporation, one of Blu-ray's principal developers, agreed to a major business deal, reached just after Toshiba made its final HD DVD decision.

Sony agreed to sell it microchip processing facilities in western Japan for approximately $835M USD.  These facilities currently produce Cell processors and RSX graphic chips.  Toshiba will enter the joint venture with Sony on April 1, 2008.

Toshiba, IBM and Sony were the principal developers of the Cell microprocessor, but Toshiba previously showed little interest in using the chip for any of its own projects.  Sony touts the Cell broadband engine in its Playstation 3 consoles; IBM uses the Cell processor in high performance computing clusters.  Toshiba has vowed to now use the Cell in its upcoming products.

While Toshiba and Sony entered into talks back in October 2007 and reached a tentative agreement to sell the cell facilities, the two companies continued to haggle about the price.  Sony's concession of what is considered a favorable price for Toshiba will likely strike many following Toshiba's drop as HD DVD as more than a coincidence, and perhaps a sign of an informal agreement.

The other interesting aspect of the move is that it indicates a clear shift by Toshiba to back the PS3.  The PS3, which last month outsold Microsoft's Xbox 360, previously had few ties to the company; while Microsoft's number one ally in hardware manufacturing has always been Toshiba.  Toshiba manufacturers several components for the Xbox 360, including the HD DVD add-on, and the Microsoft Zune MP3 players.

Toshiba's flip-flop may have been in the cards for a while.  Microsoft showed little remose as HD DVD took second place to Blu-ray; a move Toshiba must have recognized from its American ally.  Now the solidified PS3 venture between Sony and Toshiba indicates that Toshiba now has switched to backing the PS3 almost exclusively, another victory for Sony.


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RE: Business is complex.
By daftrok on 2/23/2008 3:29:37 PM , Rating: 3
Interesting anaylsis. But I feel that if the 360 had an internal HD DVD drive things would have been much more different. Toshiba wouldn't have had to waste its time making HD DVD players but HD DVD drives. The 360 would have more than likely have been released in 2006 and would have really benefited them in several ways:

1) More time to fine tune the hardware and not having to blow a billion bucks for the 3 year extension warranty.

2) HD DVD would have been easier to back up because its combined with a console.

3) Competitively priced when compared to the competition. More than likely the 360 would have been $499 with a 20 GB HDD and HD DVD player (and HDMI out). They can get away with the fact of it costing 500 dollars because it would have been toe to toe with the PS3.

4) More time for developers to create better games. Imagine Gears of War, Dead Rising, Dead or Alive 4, etc. all available at launch.

I think Toshiba's major mis-step (besides horrible marketing of HD DVD) was not persuading the 360 to have HD DVD built in. Alas, life goes on and hopefully we can see 32 nm Cell Broadband Engine in the not too distant future and maybe even a slim PS3 with a price drop.


RE: Business is complex.
By superdynamite on 2/23/08, Rating: -1
RE: Business is complex.
By Disenchanted on 2/23/2008 6:27:40 PM , Rating: 2
Points 1 and 4 are the same essentially: more time. Points 2 and 3 are the same essentially: same features/price points for both consoles. Am I the only one who thinks that Blu-ray didn't win because it was bundled in a console, but rather, because said console was the lowest priced Blu-ray player?

A console selling at a loss to the manufacturer is a model that has been used successfully for years. By choosing BD-ROM as the format for the PS3, Sony basically designed a first generation BD player with a street price of $600 instead of $1,000.

I seem to remember a lot of people getting pretty annoyed with Sony for putting the BD drive in the PS3 because of the fact that it would raise the price so much. I think the same would have happened with Microsoft if they had put the an HD DVD drive in the 360.

IMHO then, the only advantage would have been time. As it is, the 360 launched in North America 1 year (minus 5 days) before the PS3. If (according to the hypothetical in your post) it were released in 2006, Microsoft would have lost at the very least just over a crucial holiday month (assuming a Jan. 1 launch), it likely would have been much more than that. What you're considering time gained, can also be looked at as time lost, since, if we were to assume the 360 ans PS3 went head to head on launch day, Microsoft would have lost out on ~10 million sales from the first year lead it had on the PS3. Look at the sales data. If that were the case, the PS3 would already be #2 in the rankings.

And that brings me to my last point which is: Mass market penetration is what matters here. It's why HD DVD didn't win, even more than the fact that the BD format is "technologically superior", mass market is where it's at. Now you can blame HD DVD's death on marketing if you like, or business deals, or even the color of the cases, but I think if Microsoft had put HD DVD drives in the 360, it would have died even faster because of the price point issue. That's actually what surprised me was that the price point was so much better on HD DVD that I thought it would have hit the mainstream faster than it (almost?) did.

And finally, this is a great deal for both parties, since they will undoubtedly make gobs of money from this in the next several years, and they will need that money to continue to back this new format. I think the change to Blu-ray will happen, but now we need to work on interesting the rest of the world, aka, the non-geeks who have not adopted high-def as the way to view content. Remember, we are not the norm, and not everyone understands these "newfangled contraptions".

-Drew


RE: Business is complex.
By xsilver on 2/24/2008 2:32:06 AM , Rating: 2
i dont think you're quite right there.

My thinking is that the format war in this instance was favoured towards BD because it could never really die. This is because it was intergrated with the PS3 so even if all the movie studios pulled to hd-dvd BD media would still be used for ps3 games. Sony wouldnt have been happy with that but they would ride it out like they are doing with memory stick.

Had hd-dvd been intergrated with the xbox 360 I would thoerize that eventually we would come to maket saturation such that there would be dual format players everywhere and essentially end up in stalemate. As long as each side has one major studio, backed by license agreements or whatever; it would be fine.
Essentially hd-dvd bet the house and they lost.
BD however would have never given up ps3 penetration no matter what.
The fault of that being up to microsoft or toshiba however is open to debate.


RE: Business is complex.
By Belard on 2/24/2008 3:54:22 AM , Rating: 3
er... no.

While yes, the xbox360 might have HELPED the HD-DVD format, it would have been deadly for microsoft.

There are lots of factors that determine the success of a product. The xbox pretty much failed against the PS2, it came out 1.5years after the PS2 and was replaced 1 year earlier than the PS2. So M$ wanted to beat SONY to the next gen console and they did... and are finally in the black... kinda.

IF the HD-DVD drive was built into the 360 - at the very start of this format war, things might have gone badly for MS and this format war might have ended up even messier.

1 - Timing: The 360 is already unreliable with a 16% failure rate with current models. The heat from its tech has damaged mobo and drives. Imagine the repair costs for replacing a $200~300 HiDef Drive? The 360 would have missed the 2005 Christmas season (Released Nov 22 2005) and perhaps wouldn't have made it to market for another 3-6 months... Within striking distance of a PS3.

2 - Costs? No, going my Microsoft's original pricing and cost of tech. If the 360-HD version was released 6 months later and without HDMI (which didn't come out until the summer of 2007) it would have been the WEAKER console than it already is. The most likely price would have been $500~550 WITHOUT the Hard-Drive. ($280+$225) And unlike the PS3, it didn't come with wireless networking ($100 add-on). Also, the 360 chassis would have to be designed differently and most likely a more powerful PSU would have been required.

The PS3 was over 6 months late... but it didn't matter too much, they got in before Christmas... But *IF* the 360 missed the 2005 Christmas season, and gamers thought that both consoles were coming out at about the same time, not as many people would have bought the 360 - especially if it had the $500 price tag vs the $500 PS3 with 20GB drive.

They might have had a better console, but much harder time against the PS3. Microsoft went with the most logical plan for their goal. Of course, if they spent more $$$ and hired a better team to TEST it before the release of the 33% failure rate design, the 360 would have MISSED christmas... it was a gamble and they WON and LOST at the same time.

The cost to build the PS3 would have always been cheaper as SONY owned Cell & Blu-Ray. Microsoft had to BUY their CPU from IBM and their drives from Toshiba.


RE: Business is complex.
By FITCamaro on 2/24/2008 12:00:58 PM , Rating: 2
quote:
The 360 is already unreliable with a 16% failure rate with current models.


Original models might have had the higher failure rate. Current models do not have this problem. I however have an Elite from before the 65nm shrink and have had no problems.


RE: Business is complex.
By Belard on 2/24/2008 4:36:03 PM , Rating: 1
Original models have a 33% failure rate.

The 3 year warranty only applies to RROD

Other failues include drive death - usually caused by exess heat from the CPU/GPU.

The 16% figure is for the current line - a big difference, but not great... But does the new models come with a 3 year warranties.


RE: Business is complex.
By hduser on 2/24/2008 4:39:10 PM , Rating: 2
I doubt if Microsoft would've changed from a built in DVD to HD DVD mid stream. Ultimately it would've alienated the original people who had bought the 360 if there were games to be released especially HD DVD. If it chose to wait for HD-DVD it wouldn't have gotten the lead that it enjoys right now and ultimately the 360 would've costed more. Ultimately Microsoft move to release the 360 ahead of PS3 was a double edge sword, less reliabilty, no inherent HD content but a good sales lead and lower price.


RE: Business is complex.
By Belard on 2/25/2008 1:52:11 PM , Rating: 2
I didn't think I said anything about MS building in a HD-DVD in midstream. But that MS still has to buy their drives from someone else like Toshiba HD-DVD or DVD.

Of course, the HD-DVD or HiDef side is only usable for watching movies, there is NO way to change this. No developer would/could work with it. The 360 would have been far more expensive than the PS3 (more so than it ever was)... so yes, MS went the better route for a console, not HiDef movies/largeformat disc medium for games. If I was MS, I would have done the same thing, but would have made a better design chassis - but since I'm not THAT greedy, I would have made it more customer friendly. $100 for a 20GB HD, $200 for the 120GB? Come on!?


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