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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Sabresiberian - Saturday, October 6, 2007 - link
After having trouble with Creative products a couple of years ago, I'm not a fan. Fine with me if they belly up, I'm not going to buy any of their products anyway.I am saddened to think the high-end graphics card might die out, though; I can't help but think on-board audio and software reliant audio means reduced quaility. I hope this doesn't happen.
Vista handles sound through software, by-passing the audio card? I thought audio was handled by DirectX, which largely bypasses the OS. This is definitely a step in the wrong direction.
Sabresiberian - Saturday, October 6, 2007 - link
Well after reading saratoga's comments, I see I may be wrong :) hopefully the SOFTWARE for audio will be developed to reach audiophile quality.AnnonymousCoward - Tuesday, October 9, 2007 - link
I don't think that's possible. When it comes to generating analog signals, extra physical hardware (board space, capacitors) allows for quality. A single-chip solution in an MP3 player can't compete with an Audigy card that's populated with components. There's a reason why high quality receivers are big and heavy.R3MF - Friday, October 5, 2007 - link
While I see lots of people cheering the demise of Creative (and i loath the company too), are people really willing to see the last proponent of Hardware Audio Acceleration disappear down the pan?The amiga way of having dedicated hardware to massively speed-up discreet computing needs is always the best way of doing things, and we know it which is why we buy GPU's, PPU's and APU's.
Using the generic and unspectacular power of the x86 CPU to shoulder the burden of any of the above tasks is stupid. Period.
I know that Vista currently has no acceleratable (sp?) audio API, which is making Audio DSP cards like the X-Fi look redundant, but there are two advancements in 3D Game audio that did not appear to be covered in the article above before the authors leaps to his conclusion. They are:
1) OpenAL - many games now use this API and I believe that Creative do intend that the X-Fi be able to accelerate this in hardware.
2) Vista SP1 is supposed to bring the Xbox XNA (sp?) 3D audio API to the PC, why could not Creative do with this as they have done with Direct3D/Alchemy.
There seems to be plenty of future potential for hardware acceleration of 3D Audio in PC gaming, and it seems cretinous for PC gamers to accept that the best place to process the 3D audio is within the CPU.
What do you think; should the article be updated to make mention of this?
saratoga - Friday, October 5, 2007 - link
Its not going away exactly, its just moving from proprietary cores on the PCI bus to additional CPU cores, and then onto specialized x86 hardware like AMD's Fusion and Intel's on die accelerators.
This is really nonsense. I've personally seen this strategy blow up because a product was designed to process fully in hardware (not even CPU cores, literally multipliers and registers in series). It works great until someone comes up with a new task, and then you're screwed. No such thing as a software fix when you've fabbed hardware for the task.
At best hardware works when software is too slow. But its always more expensive and less flexible. Always. As soon as CPU hardware gets fast enough, you want to move to software. Cheaper, more flexible, and in the end its almost always faster just because AMD/intel can afford better fabs and more engineers then the Creative Lab's of the world.
The Xfi is a wonderful example. Each core on a modern Intel CPU outclasses it by roughly a factor of 5-10, and the gap gets bigger every year. I worked out the math a while ago, and the most expensive Core 2 CPU had something like 100x the throughput of an Xfi. Its its infinately more flexible (full IEEE754 support, large cache, faster memory, no PCI bottleneck, standard development tools, etc).
I'm sorry, but you're just plain ignorant.
You're really confused about whats happening here. The problem isn't that MS is preventing Creative from using their hardware under Vista. They're not. The problem is people aren't buying XFIs in sufficient numbers to keep it going. Take a look at Valve's hardware surveys sometime. Creative's share has been dropping 20% a quarter for some time now. Sometime in 2008 the percentage of people running steam with SLI will likely surpass the number of people running an Xfi. Think about that for a moment.
The xfi will be the last of its kind because their is no market for an xfi successor.
gramboh - Friday, October 12, 2007 - link
First off I hate Creative Labs as a company.The problem with comparing the Core 2 to the DSP chip on the X-Fi in terms of computational power is you are ignoring the hardware that produces the analog sound signal (as a poster below points out). This is my problem with onboard, the sound 'quality' I get through my phones (entry level Sennheiser HD570) and speakers (Klipsch Promedia 4.1) is awful compared to what I get from my X-Fi XtremeGamer.
I almost went with onboard on my msot recent build but luckily there was a rebate on the X-Fi XtremeGamer so I got it for $75 (still a brutal, ridiculous rip-off).
0roo0roo - Friday, October 12, 2007 - link
well i just don't think that there would be no solution to that problem if creative died. there would be m/bs with better sound on the market, and there are always all the other board makers you can try. and atleast none of them would try to waste our time with more eax lock in stuff. and as others have already said, the other boardmakers succeeding as they have shows how many people get by without creative, or buy alternatives to spite that company.0roo0roo - Friday, October 12, 2007 - link
yup given the choice between spending on a bigger lcd/faster gpu/cpu and a creative soundcard, people will drop the soundcard. the difference in most games is insignificant compared to the other factors. and in cases where creatives proprietary nonsense isnt supported, theres nodifference at all. best to go with software audio for game development and give your entire customer base access to what you've been working so hard to create.DDG - Friday, October 5, 2007 - link
Finally, someone who shares my thoughts on this. Hardware-accelerated audio will always trump onboard audio period point blank. While Creative has made mistakes that's no reason to want to see the company disappear. Hopefully Creative can get their financial house together and continue on making great sound cards.Googer - Friday, October 5, 2007 - link
The author forgot to mention Creative's Purchase of 3d Labs put the company in to the discrete graphics card business. But it seemed they never bothered to do much in the way of product development and were mostly ignored.http://en.wikipedia.org/wiki/3Dlabs">http://en.wikipedia.org/wiki/3Dlabs