The Business of Technology: Creative Labs
by Ryan Smith on October 2, 2007 5:00 PM EST- Posted in
- Bulldozer
Closing Thoughts
So between their business and technology, where does all of this leave Creative? Simply put, it would be difficult to argue they're not in a very bad situation.
On the technology side, almost all of their markets are either commodities or dying, and they're not the market leader in anything any more. Some businesses exist and thrive solely as a supplier of commodity components, but Creative isn't that kind of company. They need to be able to take a major part in a new high-profit industry to replace what they've lost from the sound card market, and they've yet to find something that can sustain them for long. Or to put things in another perspective: we don't see them as having the technology needed to carry the company.
On the business side, they're already in trouble from their technology issues. Their stock price is near record lows and they haven't been able to generate enough revenue to cover costs in a couple of years. Their saving grace at the moment is their Apple settlement, which has helped them turn a profit for this year at least. In the next year or so they may be able to take a piece of flesh from all the other major portable media player competitors, but there's a finite number of targets and as one-time payments the money won't last forever. For the time being Creative's business side can hold up the company, but it can't do this for very long, they need improvements on the technology side to bring the company back in to balance.
Looking at their research & development expenditures however, it paints a conflicting picture. A company in need of technological rejuvenation generally needs to be spending a lot on R&D, and this isn't the immediate case. FY2007 R&D spending was $64mil, compared to $77mil the year before and $82mil the year prior to that. We would have to go back to FY2003 to find a time they spent less on R&D, and that was one of their boom years. $64mil is not a small chunk of change to be spending on R&D (it's some 7% of all revenue) but it still leaves us wondering if they're going to be able to develop something to get the company out of its current rut. R&D spending only gets harder as revenue continues to drop.
In closing, it's too early to even be hinting at doom & gloom for Creative yet, but by now the first warning light has lit up. Things are not good for Creative right now, but there's a lot of time left. But can the company survive the dramatic shift required to make it? Only time will tell.
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BitJunkie - Wednesday, October 3, 2007 - link
Great article, and good summary. Could list at least 10 reasons to be annoyed with Creative but the most illustrative is that:You can't plug an AC'97 based front connector in to their X-Fi add-in boards. So EVEN IF someone wanted to use one of their boards rather than the excellent Realtek integrated solutions you automatically gimp the functionality of your chassis unless you buy their intel based front panel and clog up a 3" drive bay. They are using standards to force people to buy their own products. I paid for an add-in board, discovered this and threw the thing away. That's the last cent they get from me.
RIP Creative.
The Jedi - Saturday, October 6, 2007 - link
It turns out Intel is the one who changed up the front audio panel header from the AC'97 standard to the HD Audio standard. Creative supports the newer HD Audio front ports, but most PC cases have the older AC'97 ports. I've run into this myself and it looks like I only get headphones in the front. It looks like Auzentech actually supports the AC'97 standard ports on their cards FWIW.BitJunkie - Sunday, October 7, 2007 - link
That's my point. Creative resist the HD Audio standard when it comes to the implementation of their add-in cards, but rather cynically use it for their front panel connector. So for the majority of people who have an AC'97 front panels built in to their chassis, they are forced to buy the Creative front panel to have that front panel functionality.Guess what Creative do? they bundle the front panel with their more expensive add-in cards, forcing you to pay more than you want just to get some basic functionality you should have anyway. Idiots.
DaveLessnau - Wednesday, October 3, 2007 - link
I'd bump your rating up one, but it's already maxed out. This is EXACTLY why Creative's going bankrupt and everyone is glad its happening. Excellent post.bigpow - Tuesday, October 2, 2007 - link
I second that.It was all good and fun, while it lasted.
But it's time to move on and the end of an era is here.
IT industry don't have mercy for those who are slow or lame.
Only the fastest/most flexible ones can survive.
Compare that to the auto industry (if that's the case, the big 3 would be dead a long time ago)
n7 - Tuesday, October 2, 2007 - link
Nice summary.Good article too, thanx.
trelin - Tuesday, October 2, 2007 - link
I've always kept a spot of sincere hatred for Creative for the way they sued Aureal into declaring bankruptcy, then purchasing the Aureal IP afterwards.Aureal eventually won the lawsuit, but legal defense costs tied up funding for the AU8830. By the time it was done they simply did not have the funds to bulk produce the virtually completed chip/reference-card design and had to scrap the project.
I don't begrudge Creative for making an inferior product, but for their deplorable tactics I do hope they die and are forced sell their IP for a fraction of their development costs.
takumsawsherman - Wednesday, October 3, 2007 - link
Yes, this was total manipulation of the legal system by Creative for illicit destruction of a competitor. Having always used Sound Blaster cards for add-in situations, I was skeptical when my distributor sales guy told me to try some Aureal Vortex 2 SuperQuads. But, seeing as the Creative equivalent was $100 at the time, and the Superquads were $50 retail, I figured I would give them a shot.The sound quality was amazing, and while the drivers weren't perfect, this was the beginning of Creatives "horrible overstuffed driver" stage. $50 got the machine amazing 3D sound with A3D which Creative tried to "me too" with EAX. Except that A3D was really great, and EAX sounded like garbage. I was a convert, and was able to cheaply add great sound to the systems I was building.
Unfortunately, instead of rising to the challenge, Creative used it's tried and true "sue them into submission" strategy. Years later, I come across many SB cards with horrible crackling noises, pain in the butt driver installs, and my brain has me convinced that those old SuperQuads still sound better. Aureal was a fantastic company with fantastic technology, and Creative's big bankroll was the only thing that enabled them to drain Aureal's.
So, I totally agree with your last sentence, except I will add that I hope the Aureal people raise money to buy the IP and then make the moves that will revitalize the market.
sc3252 - Tuesday, October 2, 2007 - link
"Creative's problems are further compounded by Microsoft at #4, who is more than happy to lose money on the media player market for now" Golden! Microsoft seems to love losing money, as long as they have a chance next round.ricleo2 - Tuesday, October 2, 2007 - link
Another great article here on Anandtech. This is one of the few articles here I fully understand. When I company in this shape starts spending more on R and D, look for a rebound. Otherwise look for bankruptcy or a buyout.