The Business of Technology: Creative Labs
by Ryan Smith on October 2, 2007 5:00 PM EST- Posted in
- Bulldozer
Creative by The Numbers
We'll start with Creative's financial/business situation first, as it will help us paint the picture of their overall health and market status.
Creative first went public in 1992, listing their shares on the NASDAQ stock exchange. It's important to note however that Creative is not an American company but rather a Singapore company; so the NASDAQ listing was followed 2 years later with a listing on the Singapore Exchange, a result of their desire to tap the richer American IPO market. Creative Labs as we commonly refer to them by is actually the American subsidiary of Creative Technology Ltd.
If a stock is the best way to measure the health of a company, then Creative is about as sick as they come. Creative's lowest stock price ever was in 1996, where the stock hit a mid-day price for three days straight of $3.50, closing slightly higher than it each time. Following that low point Creative has seen numerous high-flying years, since then, peaking at nearly $40 in 2000. However the good times for Creative took a hit following the general economic downturn of 2001 and the company has never quite recovered. This has culminated in a near-continuous slide since the start of 2005, and nearly 3 whole years later the company's stock price is now flirting with the all-time low. On August 22nd of this year they briefly traded at $3.58, a mere $0.08 above their all-time low. Although they are now back up above $4 at $4.08, by this standard Creative is still in very, very poor shape.
Stock history courtesy of Yahoo! Finance
Furthermore as of the start of September, Creative has ceased listing its stock on the NASDAQ, now focusing on trading it exclusively over the Singapore Exchange, with some trading still taking place as Over The Counter trades in the United States. Creative has cited the reason for the move as being two things: 1) Most of the trading of the stock these days is done over the Singapore Exchange making the NASDAQ listings redundant and 2) They were dissatisfied with the reporting requirements for companies listed on American exchanges, which requires a level of detail and work not required for the Singapore Exchange. In other words, the reporting requirements enforced upon them to be listed on the NASDAQ weren't worth the limited trading business it was bringing them. To be fair to Creative, this announcement was made on June 14th, more than two months before they scraped the bottom, but it still has happened at a bad time for them.
To understand why their stock price is so low, we'll next take a look at their revenue, which for obvious reasons greatly influences their stock price. Creative uses a modified fiscal year calendar, with their fiscal year ending on June 30th of the year (the end of the second quarter on the traditional calendar). For the 4th quarter of fiscal year 2007 (Q4FY07, aka Q2'07) final quarter they had a revenue of $165mil, with an operating expense of $183mil, putting them in the red for the quarter to the tune of $18mil. After other income and losses (taxes, interest, etc) they lost just shy of $20mil for the quarter.
Their entire year is a brighter story, with revenue of $915mil and a final net income of $28mil. However these numbers look better for Creative than they actually are, due to the fact that in FY2007 they received a very large one-time payment for $100mil. In 2005 Creative was awarded a user interface patent for MP3 players, they promptly turned around and went after Apple with it, as Apple controls the lion's share of the MP3 player market. In August of 2006 Apple and Creative settled the matter with Apple paying Creative $100mil to drop all legal suits against Apple (with Steve Jobs saying "Creative is very fortunate to have been granted this early patent").
It's because of that $100ml payment that Creative was able to turn a profit for FY2007, and while we can't calculate what their exact income would have been for FY2007 without it, all other things held the same they would have had a sizable loss for the year. We would need to go back to FY2004 to find the last time Creative turned a real profit, when that year they pulled in $134mil. FY2005 was effectively break-even with a very slight profit of $590,000, and FY2006 saw a loss of a massive $118mil. This roughly correlates with Creative's stock price slide; they haven't turned a significant profit since FY2004 and haven't seen their stock price go up for any significant period of time since January 2005. As a result, at this point Creative is by no means destitute, thanks in large part to their settlement with Apple, but the immediate outlook isn't good, with no immediate sign that they'll be able to turn a profit in the near future.
Wrapping up Creative's financial situation, Creative includes some very interesting statistics with their fiscal reports: revenue as a share of location, and revenue as a share of product type. If you're in the Americas and you've ever felt that Creative doesn't seem very active here, you're not alone; the percentage of revenue coming from the Americas has shrunk over the past year from nearly half of all of Creative's revenue (46%) to less than a third (30%). Europe is now Creative's largest source of revenue at 47%, and Asia rounding things out at 23%.
As for the product situation, Creative has for years relied on portable media players for the majority of its revenue. This peaked in the later part of 2006, where such devices were 70% of their revenue, while this has since dropped a bit to 57% as of the end of Q4FY07. This market has a large reliance on new product releases making it volatile, but it still represents a general trend for Creative in the reduction of revenue coming from portable media players. No other product segment from Creative is nearly as big; audio, speakers, and everything else are all fairly close in size, although Creative is going to have to rely on these more and more as their portable media player revenue continues to slide.
| Revenue By Geographical Region | |||
| Q4FY2007 | Q3FY2007 | Q4FY2006 | |
| Americas | 30% | 32% | 46% |
| Europe | 47% | 49% | 37% |
| Asia & Other | 23% | 19% | 17% |
| . | |||
| Revenue By Product Category | |||
| Q4FY2007 | Q3FY2007 | Q4FY2006 | |
| Portable Media Player | 57% | 52% | 65% |
| Audio | 15% | 17% | 13% |
| Speakers | 18% | 21% | 13% |
| Other | 10% | 10% | 9% |
| . | |||
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Christobevii3 - Wednesday, October 3, 2007 - link
Sensaura was always plauged by being lower end. The companies that supported them would throw out trash $20 cards so that basically was their problem.Zak - Wednesday, October 3, 2007 - link
Corporate bullying, bloated software and crappy drivers, overpriced hardware, destroying superior Aureal3D technology, they got themselves into bad position. I've been using on-board sound for years via SPDIF fed to a AV receiver and I haven't touched a CL card in all this time, don't miss them.Z.
chizow - Wednesday, October 3, 2007 - link
I've always had a soft spot for Creative throughout the years. I'll never forget loading up Wing Commander for the first time after plunking down $100 for my first Sound Blaster and just oogling over actual MIDI sound (and later, voice with the voice pack) rather than beeps and buzzes from an internal speaker.Throughout the years I've continued buying Creative products with the latest being the X-Fi. After countless hours trying to troubleshoot it with Vista and my 650i mobo, I finally called it quits and came to the same realization the article predicts: add-in sound cards are dead.
Sure Creative products have had their share of problems here and there, but I'll certainly miss the superior positional sound of EAX in games. As much as people want to bash Creative, their drivers and their products, they sure as hell knew what they were doing when it came to audible differences in games. So long Creative, here's one person who will miss having a company who actually cared about PC sound.
leexgx - Wednesday, October 3, 2007 - link
new vista drivers are out for X-FI now ? not tryed them yet as i am running on me XP drive now (some games little BSOD unstable still heh)KillerCroc - Wednesday, October 3, 2007 - link
Creative were really responsible for putting sound cards and PC audio on the map - but they lost their dominance to advances in on-MB audio (despite Realtek's gaffes)and better chips from the competition. And as I'm writing this and listening to MediaMonkey/Shoutcast, I'm hearing a perfect example of "Years later, I come across many SB cards with horrible crackling noises," from my Audigy 2ZS card. maybe I'll do better with an M-Audio card....psychotix11 - Wednesday, October 3, 2007 - link
Other companies are releasing better sound cards. Creatives' junk really only has a point if you are a gamer and only a gamer. Their professional branded cards are a joke so let's not even delve into that. However unless all you do is play games that can use EAX5 auzentech, htomega, hell even asus now, make a far better product in both build quality, feature set, sound quality, and driver quality.Happy with my sound cards with full dolby DTS! Screw creative!
IKeelU - Wednesday, October 3, 2007 - link
I really hope it isn't the end of add-in sound boards. I don't care who makes the hardware, but I like having noise-free output w/ positional sound. The so-called "HD Audio" on my motherboard is utter crap. Even with a mediocre pair of headphones I can hear the noise. I just don't get how people can get by with that junk.Demon-Xanth - Wednesday, October 3, 2007 - link
When I had an AWE64 soundcard, I thought Creative was awesome, I had one of their Permidia2 cards and I was happy with it. I even had their DVD kit (with decoder card!). I was practically a poster Creative Labs fan. But then I got a Live card, and was less than impressed. It often flat out didn't work in my system, I ended up getting another as a gift and THAT one worked right. The first card worked in other systems, but not mine. So I stuck with the AWE64. It handled the inputs well and the sound was good. And best of all, the drivers didn't install extra crap that cluttered Windows.Then I got their Digital VCR card. My PC wasn't able to capture and convert full TV res to a compressed format at the time, and here was a card that captured to MPEG2. Well, this card turned out to be a steaming pile of crap. In two days I found a rather obvious and major bug in their software. It took them 11 months to fix it. And I couldn't find a single program that could handle the MPEG2 files that it exported to that could do more than just play them. (many failed to do even that)
But the key tipping point was when onboard audio stopped sucking. Is it as good as a dedicated sound card? Probably not. But it's not the CPU robbing POS that it used to be. And with most boards having it, the soundcard requirement went from nearly 100% to just a tiny little percent of users.
...and there was that time they wanted to charge for driver DLs.
Dfere - Wednesday, October 3, 2007 - link
Not being a techead... two thumbs up on the subject matter. Aslo good job for picking a company near (if not dear) to most of us.On the article you end with "only time will tell". IMHO do not equivocate. For a true business article, stick with facts and then possibly a projection -"The stock price is low... here is why", then "forecasts for home theater buys indicate...", or "if peripheral component sales become its focus, the company can still capitalize on its name and branding, it needs to find other companies it can acquire and slap a label on...." or something like "Seems like Creative needs to do something.... but what....?"
Did Creative release any comments about future direction.. etc etc...?
Ryan Smith - Wednesday, October 3, 2007 - link
Creative has not released its FY2007 shareholder report, nor have they filed their SEC form 20F yet, so no, there's not really much out of them on future direction. Since they are no longer traded on American exchanges, they're not required to publish these documents either.What I can tell you from their FY2007 conference call, they're aware their not doing well and they have some vague plans. For MP3 players, they're going to focus on flash players, and look to exploit the few markets Microsoft isn't competing in yet (which will be trouble with the Zune2). Their other big area is X-Fi licensing, including the actual DSP (Auzentech may not be the only one to license it) and the X-Fi crystalizer for other devices. Frankly none of this is very inspiring.