As expected, Sony Corp. and NEC Corp. signed and agreement to form a joint venture company that will carry out optical drives businesses of both companies. The move was predictable as two companies have already signed a memorandum of understanding, but was not originally expected, as the two companies back competing next-generation DVD standards.

The joint venture between Sony Corp. and NEC Corp. will be called Sony NEC Optiarc Inc. Sony and NEC will separate their respective optical disc drive businesses on April 1, 2006 in preparation for creating this joint venture. The planned date of establishment of Sony NEC Optiarc Inc, is April 3, 2006 and it will take over the two separated businesses in creating one company, according to a statement by both firms.

The head of the new company will be Shinichi Yamamura, currently deputy president of video business group of Sony. Sony will hold a 55% stake in the new company which capital is expected to be ¥490 million (about $4.2 million), while NEC’s stake will be 45%. The newly formed Sony NEC Optiarc Inc. will have approximate revenue of ¥220 billion (approximately $1.89 billion) per year.

The establishment of the joint venture that will focus on the planning, design, manufacturing and marketing to manufacturers of optical disc drives (DVD and CD drives) for integration into products such as personal computers, will allow Sony and NEC to manufacture products in larger volumes at more competitive pricing than today.

The large scale manufacturing will allow both companies to shrink costs of making next-generation DVD drives, such as Blu-ray and HD DVD. Both standards are not cheap to manufacture, but Sony said large volumes of the Blu-ray disk drives will allow to make them more affordable. Nevertheless, Sony and NEC compete fiercely against each other, as the former supports Blu-ray disc drives, whereas the latter promotes HD DVD standard. Collaboration between the companies may mean that both work on the unified optical disc standard or have internal agreements over a single standard going forward.