"We are looking beyond optical media"

One of the largest optical media companies, Moser Baer had been growing at a
fast pace, until the oil crisis happened. No thanks to increasing polycarbonate
prices, the key raw material for optical media, Moser Baer saw fortunes tumble
quickly. For the first time in its
history, the company showed losses. However, it has quickly bounced back, and
remains upbeat about the future. In a freewheeling interview with Associate
Editor, Yograj Varma, Deepak Puri, chairman of Moser Baer, talks about the fall
from grace story, about hardware manufacturing and his future plans.

On losses and losing the growth momentum

I guess each business has its ups and downs. The US-Iraq war and the rise in
oil prices hurt us very badly. We were comfortable till last year as we had
adequate supplies of polycarbonate, the key raw material. However, post
December, the new polycarbonates hitting the market were priced 2.5 times
higher. This hit us, and our competitors, very bad. However, things are looking
better. I think you will start seeing the difference from the next quarter
onwards.

On acquiring companies in the lean phase

Deepak Puri, chairman, Moser Baer

While we have a comfortable cash position and good financial partners, I
think it is not a good idea to buy out bigger competitors. We are already among
the lowest cost manufacturers in this business and I think we have made ample
investments for future growth. We already have a very dominant position in the
optical media business and buying other players will not add much value. Also,
buying out competition will restrict us from looking at other investments, which
the company is very serious looking at. One being the photo-voltaic space. We
are evaluating other investments as well.

On low promoter stake of 18%, and related take-over vulnerability

What vulnerability? I think that one or two people-primarily promoters,
run our business, across the globe. Our investors are such that they rely on the
promoters to bring value, and there is no question of our position being
undermined. Moreover, even if they decide to sell, as part of the agreement, we
have the first right of refusal.

On hardware manufacturing

I think we have a very vibrant service sector. But to me, it is selling
labor. I think we should start looking at selling beyond services, going into
hardware or into some finished software. Unfortunately, that is not happening.

Add to that, the Indian government (previous and current) does not understand
the hardware business. Let us take the example of cell phone manufacturing in
India. It is a very complex operation if you start looking at the entire value
chain. As no phone assembler makes the component himself, he has to have very
tight control of inventory. Since most of the components will be imported, they
will factor in the time lag in clearing imports. By the time that it takes the
material to reach the factory, the model would have changed. I think the
government has to mitigate these difficulties.

Another example is Intel. When Intel announced its plans for India, all
semiconductor companies were watching the deal carefully. I think the day
semiconductor comes in, your first step has been taken. And Intel was very
serious. But look at the offers Intel has had from other countries. In China,
the government is ready to offer land for the facility. In Israel, the
government pitched in with 25% of the investment. Obviously, they have similar
expectations from India, but that will not work in India given our political
system. So, I think, real hardware manufacturing is still some way away.

On new plans for Moser Baer

We are not de-risking our optical media business. We are one of the
strongest organizations in optical media and our focus will continue to be on
optical media. However, I think we have reached a stage where we have to look at
other things also. As announced recently, Moser Baer will be looking at solar
photo-voltics seriously, as the next line of business. There is a lot of synergy
between that business and our existing one.

On industry-academia thrust and R&D thrust

I think we need to ramp up the industry-academia collaboration. Look at the
US. About 80% of students are funded to do R&D. In India, the depth of
knowledge is huge as high technology R&D is happening and is funded largely
by the government. I think the IITs are a hotbed of knowledge and we have tied
up with them. I am told that the projects are working out very well. We have
also tied up with various organizations across the world. It is like following
the Mughal example. The Mughals, in order to get entry into a new region, would
marry their daughters to the local kings; appoint Vasirs; and become part of the
kingdom. We share technologies with these organizations, which helps in
bettering our products. We realized that there are areas we needed to work on,
in terms of new technology, and the IITs have been working on them for the past
15 years. Given such rich knowledge base, I think the best way for us was to
partner with the IITs, rather than duplicate the effort. The Indian tech
institutes have very enthusiastic students headed by brilliant professors. I
think partnering with them is a win-win situation for both.

On the Moser Baer branded products

While we have introduced our own branded products in India with good
success, we are also planning to do the same in some countries in South Asia. As
we have taken a policy decision of not competing in markets where our principals
are strong brands, we are looking at some countries in South Asia.

On HD DVD and Blue Ray

I think there is an impasse right now. Both sides have invested heavily and
they are not going to give up easily. This is not a question of just standards
but million dollar investments in R&D, and, more importantly, billions in
expected revenues. Both these sides are well funded. I think that the way out of
the current impasse is that both sides should come together and work out common
standards. However, until such time, the stalemate continues. From Moser Baer's
perspective, we are fabricators. Our job is not to be part of the politics but
to ensure that we are ready to roll out any or both technologies as and when the
time comes. I think we will be production-ready in the first quarter of 2006.
Since we are part of the consortium, we are working on the specifications and
also developing our own IPs. Right now it's a wait and watch situation.