Standards Battle? What Standards Battle?

A standards battle of VHS-Betamax proportions has been brewing, and the winner will control how you copy DVDs on your home computer. Among those least concerned about who wins is Roland Lacher, the outspoken chief executive of Singulus Technologies AG, based in Kahl, Germany.

“Philips DVD+RW will win the battle,” Lacher said. “DVD-RW and DVD-RAM will die.”

Not that the outcome really matters to Lacher. His machines will probably manufacture the DVDs you buy, regardless of which standard wins.

Singulus, the leading manufacturer of the machines that make optical disks (including DVDs and CDs), is doing well despite the standards war.

When CDs – plastic platters coated with metalized film that reflects laser light – were introduced 20 years ago, optical disks became an exciting new market.

By pitting the metallic surface, manufacturers can create light and dark spots. A light spot is read as a “1,” a dark one as a “0.” Measure these digits 44,100 times a second and the disk will recreate audio with startling clarity.

The catch is that to create a uniform, nonbubbling metalizer, you need extremely good – and extremely expensive – technology. And to create the machines that make the disks, you need lots of know-how.

With access to a labor pool of university-educated employees and Ph.D. researchers, Singulus says it has overcome the German obstacles of high wages and taxes and expensive travel to the company’s main markets: the United States and Asia.

“We do 100 percent of the R&D and engineering here,” Lacher said, “and outsource 100 percent of parts and components.”

To market the products, the company established scores of corporate subsidiaries, bypassing sales agents with local representation.

The formula seems to work. Although the Swiss-based company Unaxis Holding AG competes in components of the systems, Singulus has become the world leader in complete CD and DVD manufacturing systems.

Last year, Singulus said, it booked 182 DVD systems, or 65 percent of worldwide market share. (A metalizer starts at E130,000 while a DVD-recordable machine costs more than E1 million.)

Singulus posted E35 million ($38 million) in net profit last year on revenue of E286 million. Both figures grew about 25 percent from 2001, beating the company’s own expectations of a 20 percent rise, and it did so with 13 percent profit margins.

To say that investors associate Lacher with the company’s trajectory is like saying there’s some banking in Frankfurt. Lacher has an outspoken and steadfast vision for the company he helped create.

He ran Leybold AG’s thin-film coating systems division, where he oversaw research and development, sales and production in the 1990s.

Along with outside investors and a Leybold manager, Reiner Seiler, Lacher led a management buyout of Leybold’s CD business in 1996. Singulus went public in 1997.

Since then, advances in computer speeds and hard-drive technologies have rendered the 650-megabyte CD almost quaint.

A market boom is being fueled by worldwide appetite for storage capacity for movies, games and data, as well as in new DVD technologies such as the Blu-ray Disc, which uses the shorter wavelength of blue light to afford denser data storage. (Singulus said it would make the Blu-ray standard as well.)

The company’s customers are mainly DVD and CD makers in the entertainment and computer industries. Its machines have been used to produce CDs with holographic images for Microsoft Corp. and Technicolor, a division of Thomson Multimedia SA.

Product lines include Skyline CD-audio and CD-ROM making machines (38 percent of sales), Spaceline DVD systems (37 percent), Streamline recordable-CD systems (10 percent) and Singulus metalizers (3 percent).

Equipment sales have been picking up in the United States and Europe, and analysts estimate that the market will enjoy steady double-digit growth in the next two years.

In Asia, as DVDs start to replace the more common CD-Video format (an Asian standard for movie disks), saturation may be postponed even further.

Analysts are impressed with the company’s technology and management. But the analysts, investors and the company itself realize that once the market is saturated, Singulus will need to have another product lineup waiting in the wings.

Lacher is gambling that that product will be nonvolatile computer memory, or M-RAM, easily appreciated by anyone who has ever lost power while working on a spreadsheet, as it holds its data even without being powered.

Singulus is betting that the similar technologies used in making chips and disks will help it enter the semiconductor market.

As with DVDs, making M-RAM is essentially a matter of putting very thin film on a substrate and sandwiching it together with a sort of di-electric mayonnaise.

Analysts concede the logic on paper, but they also wonder whether the company can successfully break into a consolidating industry with high entry barriers and an entirely different breed of customers.

“It’s a pretty conservative industry,” Bruno Winiger, analyst at Vontobel Holding AG in Zurich, said in referring to the memory chip field.

“They use proven technologies, and they’re not fond of experimenting with things. It’s not just the technology but also the long-lasting connections to the players in the market. It’s a different customer base, and a different way of selling.”

Qualifying as a chip supplier to a company like Toshiba Corp. in the semiconductor market – where products are routinely one ten-thousandth of the thickness of a human hair – involves a more stringent process than in other industries.

To succeed in this market, a start-up needs to offer a product that is drastically superior to that of the competition.

“More established semiconductor companies such as AMD and others just have more resources to draw on for R&D, and they can draw on three decades of semiconductor manufacturing experience,” said Uche Orji, who heads the European semiconductor team at JP Morgan in London.

Furthermore, the semiconductor industry is consolidating – looking for fewer, not more, suppliers. That development, Orji said, “is a lot more challenging than people may expect.”

Lacher said he was not deterred by the odds.

“Everything’s a risk,” he said. “We think it’s a managed one. We’ve got the technology ahead of the competition.”

And if it fails?

“We’ve invested E5 million in this over two years,” Lacher said. “Look at our balance sheet – that’s pocket change.”