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
Freddo - Thursday, October 4, 2007 - link
Sometimes I wonder how PC audio would be like if Creative actually made their stuff themselves instead of ripping it out of their dead competitors. We could have cheap, high quality MIDI (E-MU), compatibility with ISA cards (Ensoniq), superior 3D sound (Aureal), and Dolby Digital encoding in hardware (Sensaura), but nooo, Creative had to ruin the fun for everyone, and keep their "monopoly", which now bitten them in the back.I really liked their Sound Blaster cards back in the DOS days, but EAX never impressed me and I've been a very satisfied customer of Terratec cards now for almost a decade.
There are a fair amount of people who will buy the latest Sound Blaster cards just for EAX or simply because it's "the soundcard to have". I'm a member of a few swedish hardware forums, and if a person there ask for soundcard recommendations, everyone will come and yell "Sound Blaster!".
I'm quite grateful for what MS has done, too, with their audio changes. And with Service Pack 1 for Vista they are adding the XAudio2 API which will probably give excellent 3D audio (Xbox 360 uses the XAudio1 API). Sure, it will use the CPU for the audio processing, but that's hardly any issue when dual-cores are the norm, and soon quad-core will be. Which removes the need for EAX, even for the EAX enthusiasts. Unfortunately, Creative pulled a patent stunt on ID software and forced them to add EAX for Doom3, so I guess they might continue to do so.
DDG - Thursday, October 4, 2007 - link
I'd rather see more competition now that ASUS has released their Xonar card. Discrete auido is still a vital component for an enjoyable multimedia experience on the PC and if it dies then you'd best believe that discrete video will be next.lsman - Thursday, October 4, 2007 - link
Thanks for different angles on Technology.I will like to view a follow up of Sound card "creative alternative" for gamers....if you can.
I currently own X-fi gamer and Audigy 2 zs, a creative mp3 player (a Zen before)
Although Audigy 2 has some problem in gaming (could be the game developer or so), its been well in X-fi so far.
jay401 - Thursday, October 4, 2007 - link
It says a lot that many gamers were willing to go with (comparatively) unknown brands for their soundcards when given the opportunity. It tells you just how big a pile of crap Creative's products were and just how little they listened to their customers to address and improve the problem areas.Creative insisted on releasing crap for years, and still often have crap for drivers and software control panels. If they hadn't been so bull-headed and actually listened to the consumer and addressed those issues, one can only guess that they would have done better and competition that cropped up like Turtle Beach, the Diamond Monster Sound MX300, and Auzentech wouldn't have gained the footholds they did because people would have actually been satisfied with their existing Creative products enough to not bother trying another brand. Creative was so bad for a while it actually encouraged other companies to get into the audio peripheral arena who likely would not have otherwise (e.g. Diamond).
jay401 - Thursday, October 4, 2007 - link
By the way, people rating posts down are folks who've never heard of the SoundBlaster16, AWE32, AWE64, etc. Newbs who don't really know Creative's history, just their X-Fi series that is actually decent (aside from a few games where they cause crashes or lockups... classic Creative driver bugs).I do wish Creative well but if they don't shape up, this is really just what they deserve for ignoring customer feedback over the years.
AggressorPrime - Thursday, October 4, 2007 - link
I just started using Creative products when their X-Fi came out. Just when they start having a quality product, they must die? The X-Fi provides numerous advantageous over onboard sound. Battlefield 2142 sounds so much better with full EAX 5.0. Of course, I know only gamers along with music enthusiasts will support X-Fi, since people might see it as a pain to hand over $100 for a quality audio experience. All Creative needs to do is then force people to use their product. What I mean by this is do what they are doing with onboard audio and MSI with everybody: every motherboard, whether desktop or notebook, oem or retail, DIY or Dell should have an X-Fi. Even better is if they can make a deal with nVidia and put X-Fi's on their video cards in order to compete with AMD's audio chip on their video cards. Then their HDMI would be better than AMD's considering the audio quality would be so ahead. And don't put on a cut down version on the motherboard or the video card. Put on the full fledge version and charge the mobo manufacturer / video card manufacturer $20 for the chip and X-RAM. Sure, you lose per product sale (considering you could've made $100), but you gain because everything uses your product. Moreover, you still make a profit $20/chip. If I saw an X-Fi Elite chip on a notebook, I know I would heavily consider getting it (since all Creative does for notebooks now is waste an ExpressCard bay for XtremeAudio, but since I got it I still think it's worth it for the serious gamer/movie/sound lover, even in Vista).deptmaster - Thursday, October 4, 2007 - link
With the advent of HDMI Creative should be licensing their audio chips to video card manufacturers or if possible get into the video card market themselves.jmurbank - Thursday, October 4, 2007 - link
The sound card business is slow and coming to a stop because nobody cares for quality sound. I rather have sound quality, but not from Creative Labs because what things happened in the past. I think my first sound card is created by Voyetra. I bought a Creative Labs Soundblaster LIVE! in 2000 thinking it was the best, but it was not. The sound quality of the card after I changed it to a Turtle Beach Santa Cruz was worst. The Santa Cruz had better sound quality and it did not hurt the bus that the LIVE card likes to do. My next sound card is Audiotrak Prodigy 7.1 which has equal sound quality compared to the Lynx Studio Technology LynxTWO.The E-Mu is a fantastic DSP chip, but Creative Labs only went for numbers instead of sound quality. If a better company used the E-Mu chip, it will be a lot better than what Creative Labs did to it.
An discrete sound card and graphics is necessary to include special features that a motherboard does not have. These discrete boards provides extreme performance that motherboard manufactures skim or cut corners to sell their boards at low prices. Discrete boards will always be in when people want very, very high quality graphics with the highest frame rates and the very best sound that a motherboard can not do.
From what I learn over the years from the sound industry. A company have to have a distinct audio tone, so that it can survive. The tone that Creative Labs is playing is more machine than an actual tone. A machine tone is not very attractive. There is a sweet, dynamic, warm, etc tones that different people like. These tones attract people to certain music artist and audio manufactures.
grantschoep - Wednesday, October 3, 2007 - link
Sorry bought that half post, fingers hitting keys a too fast rate.I've always hated that I had a Soundblaster Live!, its decent, but it was just the Soundblaster name. Any one who gamed in DOS, in the early/middle 90s, that had the Gravis Ultrasound sound card, knows what I am talking about. It totally blew away the sound quality/features of anything else. Playing Doom, was awesome. 32 stereo voices... my favorite quote "SBOS installed"(which when the Soundblaster emulator started up, the driver said this on boot.
Sure there was a few kinks to work on in the drivers, but then this was DOS, what product did have some kinks. They were good about updating software. I remember dialing via modem in long distance(to Canada from the US) to update drivers.
Anyways, competition is always good. Hey, Gravis really kicked Soundblaster's butt when it came to features. The Ultrasounds 32 stereo voices vs Soundblaster 4 voice mono, was the comparison at at time.
I think Creative should really focus on a very good power effiecent, cool processor for sound. I really don't think that many people run 7.1 audio from their computer(our home theater systems actually, since few movies even support that)
Give me a good, fast, power efficient, 2.0 stereo sound processor. Get the sound as clean as possible(low THD). I'll buy. My $2500 dollars of B&W Speakers is attached to my home theater. My 30 dollar 2 speaker/sub is attached to my computer.
Schugy - Wednesday, October 3, 2007 - link
Who needs Creative if there's no open ALSA driver for their sound cards? Who needs sound cards with disabled digital connectors because everybody is supposed to be a pirate? Who needs players with MS DRM instead of gapless ogg vorbis support? Who buys an X-Fi for PCI if there are rumors about a PCIe version of it? Ever heard of competitors products like Noxon or Soundbridge or maybe Evoke? We all like digital radio like DAB, DMB or internetstreams but who still buys FM radios? Well, digital users might become victims of encryption but I would boycott digital radio in that case :-)