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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EarthsDM - Tuesday, October 2, 2007 - link
Sorry, I meant to say 'sooner' not 'soon.'tacoburrito - Tuesday, October 2, 2007 - link
I bought the Creative Rio when it first came out and loved it. Lent it to my grilfriend but she lost it. Bought another Creative mp3 player and it worked even better. I also bought a couple of cheapo Creative soundcards to install on Pentium 2 and 3 systems and they worked great. I'm in the process of getting the Creative Zen player.I have great experience with Creative products and I don't understand the hatred towards the company. Is all the hatred because of what they did to Aureal?
trelin - Tuesday, October 2, 2007 - link
No, it's a combination of various things they've done (and continue to do). True, for some people like me Aureal alone was enough to begin boycotting the company, but a large portion of frustrated users (in the soundcard market at least) stem from product support (eg, driver quality issues) and exorbitant pricing due to their monopoly of the EAX standard. I'm not qualified to comment further on recent quality because a RivaTNT videocard was the last Creative product I've owned.A recent (some would say rather small) example was charging for Alchemy for the Audigy. I agree that it is within their rights to charge for additional software to work with Vista (they made no compatibility claims on the Audigy regarding EAX support in Vista), but charging people an extra $10 just to continue using a feature does no breed happy customers.
As to your own experiences, I don't disagree on their other markets. I had an old Cambridge 5.1 system that worked just fine, and my friend had a Rio that I rather liked. My RivaTNT based Creative card was fantastic; I had terrific success using their Unified driver (a 3dfx wrapper).
yyrkoon - Tuesday, October 2, 2007 - link
I think the biggest part of their problem is that with the advent of multiple core CPUs, and onboard audio, people are starting to realize that discrete is not realy a must, not even for an enthusiast. Audiophiles would probably buy another brand already.It may behoove them to sink their future into chipset/onboard audio, with perhaps a discrete line as well, to placiate the people who just cant get it into their heads that discrete does not nessisarily mean better. Whatever money cow they find to keep themselves afloat, they better do it fast. Also, it sounds as though this company is led by 90 year old men, who think that change is *bad*, it would not hurt them to have a few people who thought 'outside of the box'.
Anyone remember who 3DFx was ? . . . *besides* the people at HP . . .
Zoomer - Saturday, October 6, 2007 - link
I hate to say this, but Realtek is hardly excellent.Trashy, perhaps. Try running games on it. It's totally broken.
Axbattler - Wednesday, October 3, 2007 - link
What has the advent of multiple core CPU have to do with audio? If you are talking about system resource, then frankly speaking, the difference between discrete and onboard has been pretty insignificant long before the first dual core CPU.Personally, I do not like Creative much as a company (mainly due to the Aureal stunt - and I also think they've not put enough innovation over the years).
But as an audio and computer enthusiast, I find that the Elite Pro is still a viable choice. First of all, onboard sound cards, as much improvement as they've made over the year, still sound bad on demanding headphones. The Beyerdynamic DT880 honestly sound like a cheap pair of headphones when plugged on an onboard sound card, and even an Audigy 2ZS (which is hardly audiophile grade) would make the listening more enjoyable. The X-Fi line fixes a number of issue with the Audigy 2, including the infamous re-sampling issue.
The Audigy 4 Pro, Elite Pro (not sure about previous sound card in their Pro line) provide the DAC you'd find in entry level pro card (Elite Pro is pretty much an EMU-1212 with the DSP). The issue with Pro cards is that they often geared toward recording, so you end up paying for lots of inputs you might not use. Of course, audio enthusiast could always go for an external DAC if they want even better. But it cost more, takes more space and you lose the DSP unless you had a low end X-Fi as transport.
That's twice I've mentioned the DSP. People may think that if you are serious about audio, then you should not care about any form of 'sound processing'. And yes, I am not keen on any form of 'processing' when listening to music. I could not care less about the 'Crystalizer'. But I simply can't say the same about CMSS when watching movies through a good pair of headphones. I've yet to find any software or hardware processing that has given me more satisfying surround sound on my AKG K701.
On a side note, I am slightly surprised that neither Aureal nor E-MU was mentioned at all in this article.
Calin - Wednesday, October 3, 2007 - link
I remember them. My first real touch with 3DFx and Voodoo was in some game, a comparison between running on 3DFx Voodoo 2 and a Riva TNT PCI (on a top of the line Pentium II 300MHz). There was little difference in quality and speed.Guess I've lost the golden 3DFx years
Reflex - Tuesday, October 2, 2007 - link
Having worked with Creative in a professional capacity at multiple times in my career I have a few observations of my own:- Over the years Creative has refused to embrace new technolgies and trends. This includes PCI(had to buy Ensoniq to have a PCI product at all), PCI-E(offered poor excuses about latency to avoid having to release a new product), ACPI(poor driver and firmware support) and now UAA(Vista standard).
- Along those lines they have also refused to move into areas that are seemingly obvious for fear of cannibalizing their add-in board market. There is little reason that Realtek is ruling the on-board sound market, that could just have easily been Creative considering their background. Instead they chose to put on blinders and pretend that on-board audio could never compete with an add-in card. They may be correct in the absolute sense, but the average user does not give a damn. Back when it would have mattered, a Creative branded AC'97 solution with some enhanced drivers would have gone a long way, now no one would care.
- Absurd 'fanboy' attitude towards certain companies. The CEO of Creative has a passionate hatred for Microsoft. This is why MS had to develop its own drivers for Windows 2000/XP for the SBLive, and why there are no drivers for their products in Vista. Likewise, they have repeatedly had poor dealings with other manufacturers, and have treated competitors in ways that were they not a Singapore based business they would have been prosecuted in the US or EU for(Aureal is the obvious example, but they did the same to numerous smaller companies in other markets). Business is dispassionate, you do not refuse to be part of a standard(UAA) simply because you dislike the standard bearer when they hold 95% of your target market. You do not foster bad feelings among the larger market, making it unlikely that others will work with you, at some point you may need some allies.
As far as I and many in the industry are concerned, Creative is reaping what they have sown. They were lucky enough to set a standard and they rode that single success for years based on their brand name alone. Even now there are plenty of oppurtunities in their original market for them to revitalize thier success(UAA, for instance, can be paired with a powerful DSP and it will use it for accelleration), but it is doubtful that Creative will capitalize on those oppurtunities, they would rather go out of business than do things in any way other than their own.
So long Creative, I'll always remember you as the guys who gave me great sound in Doom, but I won't shed a tear for your passing. In the long run, Creative will perform its greatest service by serving as an object lesson for other companies on how not to do business.
maverick85wd - Wednesday, October 3, 2007 - link
Excellently put.I will also not be displeased to see them go, I have a Zen media player that had a screen die after four months of use. After trying to make me pay $20 for tech support (which I avoided by telling them I had already troubleshot the problem) they tried to make me pay another $20 for fixing my barely used defective player AFTER they had returned it to me. The whole situation was laughable. Either way, I will never purchase anything from them again.
Scorpion - Wednesday, October 3, 2007 - link
Yeah you summed up a lot of it.Creative's Motto for over the past decade: (which I coined for them)
"We don't innovate, we regurgitate"
I boycotted Creative back in 1998 with the last soundcard of theirs I purchased. A nightmare situation for drivers. Their drivers were terrible! And it was such a headache to even figure out the right drivers that you needed back then. With Aureal, and everything else... Just look at the PC sound market. Now look at the PC graphics market. Creative's undeserved monopoly on the market stiffled innovation for so long. We could have a rich PC sound industry right now I honestly believe if it weren't for Creative. Aureal was trying to make that happen. Creative didn't feel like competing, so they litigated them out of the market.
I hope you burn in hell Creative. Now I can stop looking at your ugly call center here in Stillwater, OK.