Creative Technology

[Musicwhiz]

A very long and extended fall from grace, which is still continuing till this day, compared to its Sound Blaster heydays.....sad. At its peak, Creative (I believe) traded at $25 per share.

Aug 4, 2011
Worsening losses at Creative Technology

THERE is no end in sight to the flow of red ink at Creative Technology.

The home-grown company, famed for its Sound Blaster cards, yesterday reported a worsening of its fourth-quarter net loss to US$19.7 million (S$23.8 million), from US$11.7 million a year ago.

This takes its net loss for the year ended June 30 to US$47.2 million, up from US$38.8 million in the previous year.

The mainboard-listed company also gave a gloomy assessment of its near-term prospects.

'For the current quarter, operating expenses are expected to be lower as a result of a restructuring exercise,' it said.

'However, with the challenging overall market for the group's products, the group expects to report an operating loss.'

Fourth-quarter revenue shrank to US$47.4 million from US$59.2 million, while sales for the full year fell by 16.1 per cent to US$231 million.

Creative explained that it continued to be affected by the difficult market for its products, particularly those relating to personal digital entertainment.

The fall in revenues was seen across all three geographical regions in which it operates: the Asia-Pacific, the Americas and Europe.

Gross profit margin was slashed to 7 per cent in the fourth quarter, compared with 24 per cent in the same period last year, due primarily to restructuring charges of US$4.2 million.

The restructuring charges comprised mainly employee severance costs, inventory write-downs and other charges relating to the discontinuance of certain businesses.

If the effect of these charges were excluded, gross profit margin in the fourth quarter would have been 16 per cent.

Full-year loss per share widened to 68 US cents, from 56 US cents previously, while group net asset value per share slipped to US$3.47 from US$4.16.

Looking at its current financial year, Creative noted that there was higher uncertainty in the global economic environment and the overall market for the group's products remained challenging.

'The group will continue to take steps to reduce operating expenses to bring them in line with the group's revenue and gross margins, targeting to return to profitability by the end of this calendar year,' it said.

Despite a horrible year, Creative will continue to pay a final dividend - at 5 cents a share, down from 10 cents last year.

Creative shares yesterday fell 12 cents, or 4 per cent, to $2.85. The results were announced after the market closed.

[corydorus]

As much as i respect the CEO, is a belated time we have a change. Some leaders are revolutionary, others Evos from it very well. No one is perfect to run under all sort of conditions.

[Musicwhiz]

As much as i respect the CEO, is a belated time we have a change. Some leaders are revolutionary, others Evos from it very well. No one is perfect to run under all sort of conditions.

Possibly not solely the CEO's fault. It may also lie with the industry (highly competitive) and R&D team (no breakthrough innovative product since SB Pro).

[corydorus]

I would't classify it as who's fault at all. He is certainly somebody that only very few could ever achieve at it heights.
What i am saying in different phase of company growth, there is different type of leadership needs. Is to know when to pass it to the next better person.

Mao is a revolutionary. Extreme ruthless even towards his own part members. But he achieves alot of which time China needed.
Many people will be disgusted on what he has done. But there are those who swear by him.

Deng gives it a major leap which i doubt mao can if god lengthed his life for the deng era.

[Musicwhiz]

I would't classify it as who's fault at all. He is certainly somebody that only very few could ever achieve at it heights.
What i am saying in different phase of company growth, there is different type of leadership needs. Is to know when to pass it to the next better person.

Mao is a revolutionary. Extreme ruthless even towards his own part members. But he achieves alot of which time China needed.
Many people will be disgusted on what he has done. But there are those who swear by him.

Deng gives it a major leap which i doubt mao can if god lengthed his life for the deng era.

Haha well my view is that it's hard for a CEO to be able to handle all phases of a Company's life cycle, from growth to maturity and now decline. It may be easy to let his Management team handle it, but then he may be afraid to "lose control". That's a character problem, though, not a Managerial one.

I think for Deng and Mao, they are essentially running a country, which is far more complex (I feel) than running a company!

[freedom]

Maybe if Creative was managed by professional managers, it may have been better

[MrValue]

I thk it is just an uphill battle for a s'pore co w a small home base to be in the global consumer electronics biz competing w the big boys.

When creative created the sound blaster, it was competing in a niche market that was expanding nicely, but yet at the same time not big enough to attract the big boys. So it was able to ride on the wave and became the market leader in that niche segment.
But when technology advanced and Creative tried to move to the portable music player, that segment quickly became the mainstream consumer electronics battleground and Creative simply don't have enough firepower to compete with the industry giants. Despite being among the first movers and throwing hundred millions of marketing dollars, the odds are just stacked against it.

I thk Creative has to find other niche market segment and stay nimble in order to survive. In other words, it probably shd only swim in the small ponds and stay away from the big sea.

just my 2 cents worth..

[Bibi]

It's not just with creative tech. I think it's the spore culture that makes it impossible to succeed in r&d. When a good researcher emerge, the co quickly promote him to management position and you loss his research experience. It happens everywhere as long as it's a spore co. for sure spore will always need foreigners to do the research job. Sad.

[corydorus]

I agree with Bibi. Singapore rewards Management not Scientist. There's a Problem with the reward culture.
Strong Individual contributor need to be paid alot more than Managers to change the trend.

[Musicwhiz]

Business Times - 02 Sep 2011

New products alone won't solve Creative's woes

By WONG WEI KONG

CREATIVE Technology on the watch list of the Singapore Exchange? Even the hint of such a possibility would have once been unthinkable.

This isn't a struggling SME or S-chip. This is Creative, once a market darling, and a flag flyer for Singapore. This is the Creative of Sim Wong Hoo, the poster boy of local entrepreneurship, the company that invented the famous Sound Blasters which let computers talk and sing, dominated the global market in sound cards and, in 1992, became the first Singapore firm to list on Nasdaq in the US.

But on Wednesday, Creative notified shareholders that it had posted pre-tax losses for the past three consecutive years. It drew their attention to SGX rules under which companies are put on a watch list if they suffer pre-tax losses for three straight fiscal years and their average daily market capitalisation for the past 120 trading days dips below S$40 million. And such companies face a possible delisting if they cannot restore their financial health within 24 months of being on the list.

For its financial year ended June 2011, Creative suffered a pre-tax loss of US$51.9 million, on top of a pre-tax loss of US$46.7 million in FY2010. It posted a net loss of US$47.2 million in FY2011, widening from a net loss of US$38.8 million in the previous year.

Creative shares fell 9 cents to S$2.50 yesterday. With a market capitalisation of S$187.1 million, it remains above the watch list threshold of S$40 million.

Still, the company's constant struggle to stay in the black, quarter to quarter, makes for sad reading.

Yet, it has to be said that this comes as no surprise to those who have been tracking the company since its heyday. Creative's problems are not just the making of the fickle technology market or economic conditions.

Think back to 1994, when Creative launched its initial public offering (IPO) in Singapore. It was lauded and welcomed as the local boy coming home after having made it overseas. Singapore investors were asked to pay S$25.80 for each Creative share, sold in one board lot of 50 shares. And the offer was well oversubscribed.

Yet, even amid the euphoria then, warnings were sounded. Some industry observers cautioned that Creative's growth might be stymied by the trend of PC makers incorporating sound capabilities directly into the PC. In the long term, this would eat into Creative's margins. It will have to sell its components to other large companies, losing in the process the profit accrued from sales and marketing activities, they said.

The bottomline was that Creative was too dependent on one key product. The company was in danger of being a 'one trick pony' - a label which Mr Sim took issue with.

But that has turned out to be Creative's tragedy. Until today, it has failed to produce another hit product like the Sound Blaster. And it has failed to respond with a successfully executed diversification of its earnings base.

Along the way, it seemed too to have lost touch with market realities.

There was much fanfare in November 2004 when Mr Sim declared war in the MP3 market and zeroed his sights on US giant Apple Computer. Creative, said Mr Sim, wanted to seize 40 per cent of the global MP3 player market by this year - estimated at about 60 million units - by selling some 24 million digital music players.

It was a bold statement, and it captured the headlines. For a while, Creative basked in the limelight, reporting strong sales and good reviews of its Zen Micro MP3 players. Mr Sim even took swipes at Apple: when Apple launched its iPod Shuffle, he laughed it off as a 'huge disappointment'.

It took just six months for these words to come back to haunt Creative, when that costly ambition sent profits reeling. Not for the first or last time, the firm failed to deliver on its own hype.

For most of the recent past years, Creative has been stumbling between profitable and loss-making quarters, cost cutting and jobs cutbacks. It has been busy, without making any real breakthrough. The company has been working on rolling out mobile processors in its StemCell line, in the hope of attracting phone and tablet computer manufacturers. It has been working on the OEM (original equipment manufacturer) track after its own brand of products met with lukewarm consumer response. It raised interest in the market with its Zii mobile platform in 2008, but fell behind competitors such as Apple and Microsoft in the portable media player market. In 2008 it slashed 2,700 jobs - nearly half of its global workforce - when it sold off its Malaysian manufacturing subsidiary.

Yesterday, Creative announced several new products at a Berlin show, including the next generation of Sound Blaster gaming headsets, the Sound Blaster Recon3D audio platform and sound cards, and the Creative ZEN X-Fi3 music, photo and video player. Would these be the game changers that will reverse Creative's fortunes? Based on past record, one can't just bet for sure.

The more likely immediate outlook makes for grimmer reading. In its June FY2011 results, the firm warned investors that it would likely post another loss in the current quarter. Sales in FY2011 had fallen by 16.1 per cent to US$231 million, with declines in all the three major markets in which it operates - Asia-Pacific, the Americas and Europe.

The answer to Creative's woes probably goes beyond new products. It has, if it could be put that way, run out of inspiration. And the fix has to be more fundamental, more sweeping, and has to take place deep within the company itself. While its markets have rapidly evolved, Creative appeared to have been left behind. A new way of thinking, a new leadership perhaps, and a new culture, are probably what the company needs most.