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%
Index Creative’s Technology
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  • Reflex - Wednesday, October 3, 2007 - link

    "My concerns are purely on the surface and no self serving MS articles or videos will illuminate me to the real facts."

    This is not a Microsoft standard, it is an industry one. Work on it began back in 1995 and was originally pushed by Intel and several laptop manufacturers looking for a way to make machines cheaper. The AC'97 and (rarely implemented) AC'99 specs were the initial results of it. HD Audio/Azalia(UAA in Vista) is simply the latest implementation. It has been ignored from the beginning by Creative, while endorsed by the vast majority of the industry, from motherboard makers to OS venders to sound card manufacturers. The videos that were linked merely explain the MS implementation of what is an open and free standard.

    "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."

    This is not true. The existing class drivers, as well as UAA, have the ability to be extensible. That means that while basic functionality is identical between them, special drivers can be created that expose additional features and abilities of the device to the OS. There is no real limitation here, and just as video cards can expose new functionality to game developers that are beyond the generalized DirectX or OGL API's, a device with a class driver can extend the interface for applications that wish to take advantage of it.

    "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."

    This is not really the point. The point is that when you have crashes you analyze what caused them and sort them into buckets to determine what causes the most problems. Microsoft has stated publicly that 97% of all OS crashes are due to third party drivers on their OS's. This mostly has to do with the fact that most drivers in the past have been kernel mode, ie: the operate at Ring 0 and as a result can take down the entire OS if they do anything wrong. The point of a class driver is that the kernel mode portions of the driver are developed by and the responsibility of Microsoft themselves, and that those class drivers provide a 'hook' that the third party can use to write a driver more specific to thier device, but where their driver operates entirely in user mode. This improves the OS in two distinct ways when a crash occurs:

    1) If a crash happens that takes down the OS, it will obviously be a bug in Microsoft's portion of the driver, and they will own all of that code and be able to issue a fix on thier end without waiting for the third party. Furthermore, such a fix will improve stability for ALL devices of the class, rather than just that specific item of hardware.

    2) If the crash happens with part of the driver that the third party developed, the OS will not go down with it, and in fact can simply restart the driver safely with no effect to the end user, no data loss, or anything else. The OS stability is not in any way impacted.

    This also makes driver development cheaper since Microsoft is taking on the development of the most complicated portion of the development and taking responsibility for the results, plus users benefit from a true 'plug and play' experience, everything just works, even if its not utilizing all features(need the third party driver to enable everything).

    Now in the previous two paragraphs, feel free to substitute 'Microsoft' for 'Linux' or 'Apple' since they also can and are implementing this system as well.

    Hope that makes some things clearer!
  • Ryan Smith - Wednesday, October 3, 2007 - link

    MadBoris, you're pretty much spot on. From everything I've researched in to UAA there's no real option for interfacing hardware with the audio stack; you have to use another API like OpenAL to do so. This does bring about that level of stability Reflex was talking about, but it effectively fixes everyone's hardware at a least-common-denominator (though it should be noted that you can bolt on software to the stack to do effects, Creative already does this in some places with Vista; it eats up even more CPU time though). This is great for RealTek and the like who are making low end gear, because now Microsoft is doing all the hard work for them and they can ship what amounts to a DAC with a few lines of code once they no longer support XP.

    Microsoft's vision going forward is that all audio effects will be done in software. For example, a game like BioShock will build or license an audio engine (FMOD) that can do all of these effects we've come to expect via software, then Vista lets the game see each speaker to write out the appropriate hardware. Good processing is expensive (the X-Fi and its 51mil transistors isn't just sitting on its butt), so what we get today isn't very good processing.

    Things may improve with more processor power. They may also just stay the same while companies focus on graphics over audio.
  • BitJunkie - Wednesday, October 3, 2007 - link

    So how did we end up in this position? What prompted MS to be so heavy handed (or radical?) in their approach to changing Windows audio? There is no major advantage to MS in dictating things in this way that I can see - other than stability.

    There has to be some reason for the Microsoft Azalia / intel HD Audio standard becoming dominant, what exactly was Creative doing or not doing - with their defacto monopoly on gaming audio? All interesting questions in my view. Would be good if anyone could shed some light on them.

    I can't help but feel that as consumers we've lost out because of Creative's business practices and attitude - maybe I'm being unfair in that. Ultimately though Creative have to carry the can for where they are at present.
  • Reflex - Wednesday, October 3, 2007 - link

    "From everything I've researched in to UAA there's no real option for interfacing hardware with the audio stack; you have to use another API like OpenAL to do so."

    This is explicitly not true. UAA does allow flexible DSP's to be developed for hardware accelleration. Re-read the spec if this is the indication you got.

    "Good processing is expensive (the X-Fi and its 51mil transistors isn't just sitting on its butt), so what we get today isn't very good processing."

    First off, no, its not expensive. The reason the X-Fi is 51 million transisters is because it is a software designed chip. That is a notoriously transister intensive method of designing a chip, and they have done little manual tweaking to reduce its transister counts. This is one reason that on the surface video chips appear to be more complicated than CPU's, but ask designers of both what they think and you'll find that GPU's aren't even in the same league. Creative went cheap on the design process and the result is that their chip is transister heavy.

    Secondly, reviewers of Bioshock who tested it on Vista noticed that the sound was exceptional. I would suggest looking into that. It really had no serious issues although it did have a bit of a perf hit(but this was mostly due to audio drivers not being mature).
  • BikeDude - Wednesday, October 3, 2007 - link

    At first I thought "great, let us see what is going on with Creative then", but the article left more questions than answers.

    I would love to learn why Creative's drivers "suck" under Vista. I can't remember seeing an article explaining how Vista's audio stack works, nor why hw acceleration is less important.

    I also see many commenters here who say MS killed EAX. How so? There are plenty of existing games supporting it? E.g. in BattleField 2, to get an echo effect inside a warehouse, you are pretty much limited to the X-Fi as other EAX implementors don't go far enough. (at least that used to be the case)

    Instead of answering such questions, Anand presents us with a "why buy/sell Creative stocks". Honestly, I could not care less about the stock market at this moment... :P (not exactly stable at the moment, now is it?)
  • Zak - Wednesday, October 3, 2007 - link

    "a company being forced out of business" - CL is getting the taste of their own medicine...

  • MadBoris - Wednesday, October 3, 2007 - link

    I was a real fan of Aureal back in the day.
    I am good with that, what goes around comes around.
    I just don't like the way it came around with MS drawing the line, MS is a great chess player thinking many moves ahead, where it's difficult to see where they are going.
  • BitJunkie - Wednesday, October 3, 2007 - link

    MS did a lot of work behind the scenes on Vista that changed the way audio is handled. For those that are technically orientated and can understand pretty techy chat there's a good video here:"> on the vista audio stack.

    For a higher level overview, there's a good video here:"> in which the move from AC'97 to HD Audio (Azaelia) and the requirements for hardware design and driver programming are discussed. You can see that a lot of effort was focused on routing circuits on PCBs to avoid noise and to design hardware to minimise interference. Sounds like an OEM gave Scoble a call and bitched about the Vista logo program back in 2005 - regarding the audio stack perhaps.

    It's all MS "propaganda" but gives a good insight in to their design philosophy. It also gives a better understanding of why Vista is a big step forward.
  • Christobevii3 - Wednesday, October 3, 2007 - link

    How can you only blame the market?

    First up creatives pricing sucks. Even an entry level card is nearly $100 on the x-fi or was when i looked. So what did this $100 offer me?

    1. A sound card that can't do dts encoding for games to my 5.1 receiver.
    2. Drivers that are worse than a steam update

    I haven't used a creative card since their sblive in 1999 because of the drivers. It worked ok on an fic az11 but when i upgraded it crackled like hell. But not only that, when i tried to update the driver to fix it, it hard locked the os but even safe mode couldn't uninstall the drivers. The next setup of trying to get it to work failed and the drivers had grown to roughly 60MB. So I gave up and just dealt with onboard sound.

    Now, I have an HT omega sound card and love it. The drivers only problem is the mic boost button has to be rechecked on startup!!! Not only that but the drivers are like 15MB 8 years later after creatives and i can do dts output to my receiver in realtime. Interesting that the $60 sound card i purchase has now gotten so popular that it is $80, but also that it uses higher quality solid state capacitors where an equal creative has old style ones suseptable to rotting out.

    Last but least, screwing over aureal and then not supporting a3d. Fuck that.
  • cosmotic - Wednesday, October 3, 2007 - link

    I can't believe no one has mentioned Sensaura yet. Its another company, like Aureal, that had a superior product which Creative bought for their IP.

    Sensaura produced software that let other sound card manufacturers take advantage of A3D, DirectSound, OpenAL, and EAX 1 and 2. For years third party sound card manufactures have had this same list of supported APIs without adding new versions of EAX, most likely because Creative now owns them.

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