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% |
| . | |||
Facebook
Twitter
RSS
95 Comments
View All Comments
KingofL337 - Wednesday, October 3, 2007 - link
How do you spend 60+ million in R&D a year and release almost nothing except a few iffy mp3 players. Creative hasn't released a new sound card product in years. They just keep re-releasing the Audugy brand and thats about it. How long has it been since Nvidia released the soundstorm chipsets? Everyone you talk to about sound cards wants real time DD / DTS / AC3 encoding and creative still hasn't released a product with that feature.I for one won't miss Creative's overpriced crappy sound cards once they are gone.
Scorpion - Wednesday, October 3, 2007 - link
I've been saying this since '99:Creative doesn't innovate, they regurgitate.
Pyramix - Wednesday, October 3, 2007 - link
It was an informative article and I am glad to see this new direction on this website.Spoelie - Wednesday, October 3, 2007 - link
But there are three 'but(t)s' in the last paragraph, but it's not really that annoying, but also a little annoyingsmn198 - Wednesday, October 3, 2007 - link
Ditto.mindless1 - Wednesday, October 3, 2007 - link
I beg to differ with the article on the point of onboard sound being a joke 10 years ago. 10 years ago onboard sound was superior for it's primary (most common) purpose, 2 channel analog output.Take for example Intel P2 boards with Ensoniq (later bought by creative) 1370 chip on them. They had a very full sound, better bass, and it was more immune to system noise than today's integrated audio. People I built systems for back then often remarked about how unusually good they sounded compared to what they had been used to with some sound cards. Creative later rebadged the Ensoniq 1370 and made some sound cards, but things when downhill when the industry went to 48KHz rate and resampled everything.
The same goes for many solutions back then, they typically used discrete sound chips and did fairly well at 2 channel analog output. While there weren't a lot of bells and whistles, and the paper specs didn't look as good, I think we all know paper specs mean little when it comes to sound quality, at least when talking about low level signals opposed to circuits with high gain like power amps.
The terrible truth is, most people have two analog amplified speakers and nothing matters to them except whether that config sounds good. With onboard sound today there is usually a lot of undesirable noise from the onboard audio, and as such it is almost the worst onboard audio has ever been. I partly blame the higher currents in today's systems, but nevertheless it effects the result. Some systems are bad enough you have to disable ACPI/Halt just to get rid of a lot of the noise, if you care much at all about audio quality.
LoneWolf15 - Wednesday, October 3, 2007 - link
Of all the driver problems I had with sound cards, the Ensoniq 1370-based ones were the biggest pains. The entire AudioPCI family was just plain and simple, miserable; I've had numerous occasions where I ripped one from a machine because of cards working, not working next reboot, driver installs sometimes fixing it, sometimes not, etc. Sad, knowing that the original ISA Ensoniq Soundscape cards really rocked.Onboard sound was bad years ago. IMHO, it still isn't great, although the ADI/Soundmax and Sigmatel codecs used on Intel boards put most of Realtek's stuff to shame. Creative had a golden opportunity at some point to do this with their own chips, but I think a combination of elitism, and likely demanding higher prices probably doomed this. The only one that has taken them up on this is MSI, and the sound chip used has been the rather lame one used in the Audigy SE and SBLive! 24-bit, with no true hardware DSP. I think the sound card market death is only partially due to Creative; some of it is due to the new way Vista DirectX works, sacrificing possible innovation in audio for relative driver stability, and some of it is due to no other vendors stepping up to the plate to provide true competition, especially in the mainstream and gaming markets.
mindless1 - Thursday, October 4, 2007 - link
I think you just had bad drivers or buggy motherboard bios, I ran 1370 boards without any problem. If you are only referring to early win95 era drivers, ok, but most drivers for win95 were junk, that's how it went with driver development at the time and unfortunately too many people were quick to fault the OS. NOt that Win95 was flawless but there's definitely some variable besides the card when I didn't have the same problems.Cincybeck - Tuesday, October 2, 2007 - link
Looking back, I think Aureal probably suffered more from bad legal council and childish antics. Yes Creative issued the first lawsuit but, Aureal fired back with its own counter-suit. Aureal ended up winning that first lawsuit, but the two companies bitterly went back and forth like two siblings. Aureal even went as far as publicly announcing Creative's first PCI card on their website. A low blow if you ask me on Creative's late entry to the PCI market. I don't see how any one can entirely blame Aureal's demise on Creative.As for Creative's products I've never had any bad luck with them. They've all worked as they should and I can not remember a single time where I’ve had a BSOD as a result of the Audio drivers. Maybe I've just have been lucky.
As for Vista support I believe the gun should be pointed at Microsoft on that one. Because not only is Creative having issues but Turtle Beach is as well. Even going as far as stating that any one using their computer to accomplish a task should stick with WinXP "http://support.turtlebeach.com/site/kb_ftp/5882198...">http://support.turtlebeach.com/site/kb_ftp/5882198.... Its obvious Microsoft cut the floor out from under their feet with not supporting DirectSound/3D in UAA, maybe a legacy mode? I don't know.
Personally I enjoy the quality clear sound provided by my Audigy and still plan on buying an X-fi, if that means sticking with XP for a year or two more I have no problem with that. Granted I haven't heard a new on-board as of late, but the quality still echoes in my mind and just Blah. Anyway XP does everything I need it to and it would appear in most cases it does it better than Vista.
PandaBear - Tuesday, October 2, 2007 - link
With everything getting integrated, you either have to move up and be a chipset (at least south bridge) company or consumer product company. They have the Cambridge soundwork name, why not build good home theater system with it? Just relying on Nomad for MP3 is not enough, esp others are doing it for other reasons (sandisk do it to sell more flash, MS do it to get more monopoly, etc). You have to wonder what is the advantage Creative have over the others.In the end, I think they should either go into a chipset company for mp3 players like sigmatel or get into home theater business like pioneer. They are just another logitech but with much higher overhead.