Philips joins IBM in taking stake in virtual reality firm

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The high-tech start-up company Virtuality Group gained a new shareholder yesterday, with the announcement that the Dutch electronics giant Philips has taken a near-5 per cent interest.

Electris Finance of Luxembourg, a Philips subsidiary, has agreed to buy 1.3 million shares through a share placing at 192.3p each. The placing will net Virtuality about pounds 2.4m, to be used to bolster working capital.

Philips joins two other significant shareholders, IBM and Motorola, the electronics company. Virtuality welcomed the investment, saying it would be "beneficial to both companies".

A leading developer of equipment used in so-called "virtual reality" entertainment applications, Virtuality is still losing money, reporting a loss last year of pounds 1.4m on turnover of pounds 9.1m. But analysts expect the company to go into profit this year, on the strength of contracts signed with IBM, Sega and Atari and the anticipated upturn in the market for games and games software.

The two licensing contracts provide up-front development money worth about pounds 1m to Virtuality. Atari agreed earlier this year to pay advance royalties on Virtuality games and software for use on Atari's multimedia entertainment system. The games company had already agreed to help fund the development of Virtuality's trademark "head-mounted display", a helmet to be worn by users of Atari's Jaguar video game console.

Philips has recently stepped up investment in CD-ROM technology, launching a self-standing multimedia operation to develop games and information products. It is also backing one of two standards for a new compact disc technology, and is an important manufacturer of video cassette recorders, televisions and other home entertaiment equipment.

While its investment in Virtuality is small, the link provides Philips with a window on the virtual games sector, and fits the company's strategy of developing several technology strands simultaneously.

Virtuality's chairman, Derek Payne, welcomed the Philips investment, saying it represented a vote of confidence in the company's future.