The Business of Technology: Creative Labsby Ryan Smith on October 2, 2007 5:00 PM EST
- Posted in
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|
|Asia & Other||23%||19%||17%|
|Revenue By Product Category|
|Portable Media Player||57%||52%||65%|
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shortylickens - Wednesday, October 3, 2007 - linkCreative would have done better to work with onboard audio instead of fighting it so hard.
Instead of trying to convince a small portion of the market (gamers and enthusiasts) to buy a $100 add-in product, they should have been putting $20 audio chips into motherboards, and reaching 100% of the market.
Thats the standard to surviving in business. You either sell a handful of very expensive products to a few customers, or you sell a buttload of cheap products to many customers.
When the overpriced, low-sale items (Live, Audigy, X-FI) werent keeping them afloat, they should have switched tactics.
MadBoris - Wednesday, October 3, 2007 - linkThey are being put out of audio card business by Microsoft, simple.
I cannot understand how people can so easily swallow what they are fed.
Somehow the great variation of OEM onboard sound cards with minimalistic drivers (written in some third world closet) is going to be a benefit to all of us.
Now you will have 10-30 variations of onboard sound cards in crrent platforms all competing to be the lowest priced $1.25 chips on future mobo's. They will have their own idiosynchrocies just due to the extreme variety and poor minimalistic drivers. Instead of a HW MFR's bearing the major burdens, it will be the API's now, but mainly Microsoft that will directly control the future advances in sound processing. Furthermore, MS pushing their software based sound API's for gaming like XACT is really just a shift to move PC devs to their console market (part of their device in every home goal).
Sorry, I'm not buying the whole Vista is improving on the auditory benefits of humanity. Creative may not have been the greatest thing since sliced bread in people's minds, but their was possible competition. MS's directsound API blew really. But MS 'really' handling it all now is not an improvement to me. Just another move MS has made in putting their foot in as a door stop and making sure they dominate/control an area, unfortunately they are very slow in even stealing and implementing other peoples ideas, let alone doing anything really well on their own.
I used to slam people who were MS conspiracy theorists but eventually you have to see what is really going on with their motivations a seeing a few moves ahead. The new wddm driver models and DX API's was another step in MS placing in a door stop with future GPU design decisions being directly controlled by them, just more goals of isolating.
I would like to see Anandtech take a hard nosed look at MS business strategies, not just at a company being forced out of business, now that could be an article. :)
BitJunkie - Wednesday, October 3, 2007 - linkThey aren't being put out of business by MS. They are being put out of business by an inability to change and innovate because they are still in the mindset that "creative labs IS PC audio". All they had to do is start to develop HD Audio compliant solutions with all their funky hardware DSP effects and they would have been in a very competative position.
They didn't innovate, so they aren't competative. Worse than that, they knobbled the competition, sat on the technology and stagnated the PC audio market so we as consumers are in a worse position. Thank god for HD Audio - I just hope someone starts making decent HD Audio add-in boards to extend the capabilities under Vista.
All MS did was fix a fundamentally crap driver architecture and audio stack - what I don't understand is why a company making it's business off of the back of one computing platform was arrogant enough to think that they could survive for long by ignoring that change.
Zak - Wednesday, October 3, 2007 - link"inability to change and innovate because they are still in the mindset..." - does this remind anyone of RIAA? LOL...
Reflex - Wednesday, October 3, 2007 - linkI'm guessing you are not a developer. Your post seems to ignore some very basic realities. UAA is not new, it is the OS level implementation of the Azalia/HD-Audio spec, and its a standard that is open to any developer on any platform(including Linux). It is not MS owned. Every single audio chip maker of any consequence signed on willingly with the single exception of Creative Labs. They all agreed that it would reduce development costs, increase platform stability(regardless of platform) and increase audio quality. Once again, the only dissenter was Creative. I understand your concerns, but honestly they are not reflected by anyone credible in the industry.
"Now you will have 10-30 variations of onboard sound cards in crrent platforms all competing to be the lowest priced $1.25 chips on future mobo's. They will have their own idiosynchrocies just due to the extreme variety and poor minimalistic drivers."
Just to address this issue specifically, have you plugged a flash drive into a computer recently? How about a digital camera? Mouse? Keyboard? All of these devices use the same concept as UAA, namely a minimal class driver that allows OEM's to add extensions to take advantage of individual features. The end result is that these devices 'just work' for all basic functionality out of the box without a specialized driver required. None of them have the capability to bluescreen the OS, nor do they compromise security via poor coding practices. This is the future of drivers on the Windows platform, and it is a major part of why each successive OS is more stable than the previous version. I would not be suprised to see network drivers head this route soon. And yes, the specs for all of these things are open and generally not controlled by MS(Intel is typically the prime mover actually) and are also implemented on other OS's, including OS X and Linux.
These advances benefit everyone. Unfortunatly Creative could not see that. All they had to do was focus R&D into making a truly beneficial programmable DSP for audio and they'd have had a real winner, but their unwillingness to do so has made them irrelevant.
MadBoris - Wednesday, October 3, 2007 - linkNot a sound developer. No developer is expert in all technologies.
While I admit I lack the expertise to see all the underlying facts of the case.
My concerns are purely on the surface and no self serving MS articles or videos will illuminate me to the real facts. Just on the surface alone I see issues, but we will see how it will all play out. It will likely affect different segments of the PC differently with some good and bad.
As to minimal class drivers, the only problem is that they provide minimal functionality out of a given device as i understand it. There is no room for a hardware MFR to expose new functionality unless it is adopted by everyone and as a standard. It removes the beauty of what R&D can do in moving technology forward, a minimal class driver is an unfortunate direction. Overall stability can never be attained, MS themselves consistently prove that, but their are other ways to move in that desired direction rather than a minimalistic approach. Feel free to correct me if I am mistaken, since you appear more versed on the subject of the direction of drivers.
saratoga - Wednesday, October 3, 2007 - link
I think you're seriously confused about how the industry is moving forward. DOS is long dead. You're not supposed to be doing things like sound effects in a driver on a modern system. Sound was one of the few areas that got a free pass from MS/Apple to stay in the stone age when OSes were dragged into the modern era. This led the the ridiculous number of problems with sound drivers over the last 10 years.
Moving this stuff into user mode is absolutely the way forward.
Which is not a justification for using unstable or shoddy methods. You're trying to say that since something cannot be perfect, theres no sense in improving it. Thats wrong. If something is imperfect, improving it is often a sensible course of action. Its also why we don't run Windows 98 anymore.
Well, theres the Windows 2003 approach where the entire audio stack is just turned off rather then risk it taking down the machine. I don't think thats a better solution. Other then that, theres not a whole lot you can do. If you're letting people run enormously complicated code in drivers, you're going to have a lot of problems. Its really that simple.
And anyway, you keep implying that something important is being lost here. I really don't agree. This is the way forward if we want to have multicore and GPU-coprocessor accelerated sound. These are worth the cost of making the couple percent of the market who have an XFI install the OpenAL comparability layer since it will open the way forward for far more stable and far more advanced positional sound engines in the future.
BikeDude - Thursday, October 4, 2007 - link
First things first: I wholeheartedly agree on the stability issues. Creative has proven, time and time again that they cannot be trusted to write a driver that doesn't seriously compromise your system's stability. (mind you, nVidia are fast approaching that stage too IMO)
But I am curious how you so categorically can state that moving the audio driver into user mode aids multicore accelerated sounds?
I do not know the exact details, but if you look at Mark Russinovich's book "Inside Windows 2000", he explains that the GDI was moved in to the kernel (from user mode) because that was the only way they could see their way of improving multi-core performance. Prior to NT4, graphics performance was actually hurt by using several cores (or CPUs rather). Photoshop used to run slower on a dual-CPU rig.
But of course, the Windows team are more aware of this situation than I am, so hopefully they have given this subject a lot of thought. Although I suspect/fear that the stability argument has been fairly heavy, because... Creative's drivers plain suck. They are a menace to any computer. From what I have seen, only a handful people are skilled enough to write kernel device drivers and none of them have ever been employed by Creative.
(FWIW: I distinctly remember the time when NT4 introduced the changes I refer to, as well as all the cries of "OMG! they moved the graphics driver into the kernel! Total mayhem will ensue!" -- completely missing the obvious: The third-party graphics driver from ATI et al, was already running in the kernel, starting with NT 3.1! But GDI wasn't, and without GDI Windows pretty much doesn't function, so it has to be rock solid and has a pretty good track record)
As for Windows 2003 -- the audio stack is turned off by default. You can easily set Win2003 up as a gaming OS, just like XP. (I've used it that way since before its release) But certainly, by default it runs without any fancy features enabled. With good reason, e.g. nVidia quietly dropped PAE support after 79.11. After version 79.11, stuff stops working when you have 4GB main memory+. (32-bit Windows 2003) I can easily imagine similar issues arising with drivers such as the ones Creative puts out.
saratoga - Thursday, October 4, 2007 - link
It lets developers write sound code without writing drivers. Pretty simple really. It also allows for easy development of middleware for doing accelerated sound.
GDI was moved into kernel mode so that the system didn't have to switch processor modes over and over again just to draw simple GUI elements. This has nothing to do with GDI.
Photoshop is not a driver. I don't know why you're bringing it up.
Yes, but then you would incur the same stability issues as other versions of Windows.
BikeDude - Friday, October 5, 2007 - link[quote]
Photoshop is not a driver. I don't know why you're bringing it up.
Because back then (NT 3.51) this was the side-effect of having GDI in user mode. Moving GDI into the kernel was mainly done to increase performance on SMP rigs. (according to Mark's book)
[quote]Yes, but then you would incur the same stability issues as other versions of Windows.[/quote]
...provided you use an audio driver from a not-too-bright OEM. Not all of us still use Creative you know... :P (granted, my CMedia chip triggers a BSOD if I enable EAX2 in "Medieaval Total War 2", the situation is nowhere as bad as it was with the Creative drivers I have used in the past)