The drive, announced on Monday, appears to solve some of the compatibility issues that are consuming the DVD world. NEC says its lens is the first to be able to read and write to all three formats.
HD-DVD, DVD and CD systems each contain lasers that produce light of a different wavelength. Because NEC's prototype can read all three formats using this single optical head, the drive is small enough to be fitted into a desktop PC.
"The development of drive firmware technology, system LSI technology and HD DVD/DVD/CD-compatible optical head technology enables realisation of a compact HD DVD drive and its ease of incorporation into personal computers," said NEC in a statement.
NEC says the device will be on display at the Consumer Electronics Show (CES) at the start of next year. It could be commercially available later in 2005.
The HD-DVD format -- proposed by NEC and Toshiba earlier this year -- can hold many times more data than a standard DVD, and is one two formats jostling to be the successor to DVD. Its rival is Blu-ray, backed by Sony, Panasonic and Philips, among others.