Notes to the financial statements - Plasmon

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UDO optical media will be manufactured in Cambridge and will be available in both write-once and rewritable formats Plasmon Plc Annual Report 2003 Chief Executive’s Review 8 UDO Development Ultra Density Optical (‘UDO’) is the next generation of 5.25" drives and media that we are developing to succeed the existing 9.1GB MO products we source from Sony. UDO employs the latest blue laser technology that provides an increased 30GB capacity and a five-fold decrease in incremental storage cost over existing MO systems. Since commencing development in 1999 we have worked closely with HP on the project and expect them to become the major OEM customer for UDO technology. Since the successful demonstration of working drives at Comdex last November, we have continued to make good progress with our UDO development programme and are now reading and writing data reliably in form-factor drives. The final phases of the development are now underway and involve manufacturing increasingly large batches of prototype drives and media to de-bug the system fully and maximise performance and reliability. The UDO drive employs four ASIC chips that have been specifically designed by Plasmon and our development partners. Successful development of these ASICs represented one of the major risks in the UDO programme but three of them are now complete and fully tested. The final Optical Disc Controller (ODC) chip has exhibited some speed limitations during testing but a revised design has now been released to fabrication which should solve the outstanding issues. Our total capital investment in the ASICs will be some £3m but they are critical to achieving the low volume production costs that will allow UDO to compete effectively in the market. Another area of significant risk in the UDO programme was the availability of blue lasers
from Nichia, our Japanese supplier. In December 2002 Nichia announced a new agreement to collaborate with Sony on blue laser development for use in Sony’s ‘Blu-ray’ consumer video products. Nichia also informed Plasmon that due to yield problems with their existing laser, they were moving to a revised laser design employing elements of Sony technology. We have now successfully integrated the new lasers into our UDO drives and we are confident that their performance and reliability will comfortably exceed our requirements. The opto-mechanical assembly (‘OMA’) for the UDO drive is being developed by Pentax, the leading Japanese optical technology company. The hard tooling for the OMA is now complete and we are currently integrating production quality units into our prototype drives. Our working relationship with Pentax continues to be excellent and we have recently despatched one of our Japanese speaking engineers to Japan for 18 months to help transition the OMA to a low cost volume production facility. UDO media development is also making good progress and we now have the majority of the disk manufacturing equipment installed at our facility in Melbourn. The new cleanroom is fully commissioned and when complete the production line will have a total capacity of some 80,000 write-once and rewritable UDO disks per month. Development of the phase change recording layers for UDO media is proceeding well and the specification of the write-once disk is now finalised for volume production. This will employ a four layer structure based on phase change technology licenced from Kodak that we also use on our existing 12-inch optical disk products. We are therefore very familiar with the manufacturing process for this material and are confident a high yield process will be achieved. The rewritable phase change disk is in its final testing phase and will employ an eight layer structure to optimise rewrite cycle performance, environmental longevity and manufacturability. In January 2003 we signed a licence agreement with Mitsubishi Chemical Media (‘MCM’) for their patents and technologies for improving rewrite cycle Plasmon Plc Annual Report 2003 and cross erase performance in phase change rewritable media. Using MCM’s technology we have already exceeded the UDO specification of 10,000 rewrite cycles and with further optimisation, believe that 25,000 cycles may be achievable. MCM are the world’s largest optical disk manufacturer and as well as first class technical know-how, they have an excellent quality reputation with the major OEM customers such as HP and IBM. We continue to work closely with HP on their UDO plans and as they move towards UDO endorsement they are pressing MCM to be the second source media manufacturer. Major partners such as HP and MCM will be critical in establishing UDO as the de-facto standard in professional optical storage and we continue to use every effort to secure their endorsement of UDO. Having established the UDO media production facility and commenced trial production runs, we are now working on improvements to the 0.1mm cover layer process to reduce volume production costs. We have recently approved a European supplier of optical grade 0.1mm film that has reduced our material costs by some 75% over Far East suppliers. In addition, we are also working on a new liquid spin coating technique that is now providing excellent uniformity and will dramatically reduce future production costs. The media cartridge is an important component in the overall robustness and reliability of UDO technology and has been an area of intense focus over the last year. We have recently taken delivery of initial samples from the final production tooling and are now working with Dai-Nippon, our Japanese supplier, to move volume production to China to minimise long term cartridge manufacturing costs. Overall, the UDO development programme is progressing well and we are on schedule to make initial product deliveries in September 2003. As expected, UDO’s common technology base with consumer Blu-ray products continues to provide technology leverage opportunities and will ensure our long-term manufacturing costs remain competitive. Chief Executive’s Review 9 Plasmon product mix 2003 5.25" 42% 12" 33% CD/DVD 11% Consultancy 7% LTO tape 2% Other 5% Plasmon product mix 2002 5.25" 43% 12" 38% CD/DVD 5% Consultancy 6% LTO tape 2% Other 6%
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Notes to the financial statements - Plasmon

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