RSSCreative's Loss Surges on MP3 Woes
By Ed Oswald | Published May 3, 2006, 11:24 AM
Creative's losses widened in the third quarter as the company's digital music player business continued to struggle in the face of price pressures and fierce competition from the Apple iPod. But Creative showed no signs of a willingness to abandon the effort that has been spearheaded by its vociferous chairman.
Sim Wong Hoo made digital media players Creative's premier business two years ago in a bid to take on the iconic iPod. However, while vehemently defending his decision and products since then, none of the company's players have caught on with consumers.
For the three months ending in March, Creative posted a loss of $114.33 million, compared with a $15.91 million profit in the year ago quarter. Revenue also shrunk by a third, from $338.8 million last year to $225.7 million in the current quarter.
The loss included a charge of $41.60 million due to restructuring related to Creative's 3DLabs division. The company said the charge was necessary in order to reduce operating expenses so it could focus on its handheld device market.
In a statement announcing the results, Creative Labs president Craig McHugh explained the factors causing the company's financial woes, which included the 3DLabs restructuring.
"There was a drop in flash memory prices in the quarter, with a precipitous drop in prices at the end of the quarter," he said. "This had a significant adverse effect on our sales in the quarter, and resulted in lower revenues, lower gross margins and inventory write-downs in the period."
McHugh said the company would look at all of its divisions to see how the company can improve revenues and reduce operating expenses. Creative is also targeting profitability by the end of 2006.
Analysts said that Creative must reduce operating costs if it wishes to return to profitability, and that might include a hard look at the digital media business to see if it is truly viable for the company.
Also, Creative must improve its execution, say analysts. While flash memory prices affected all device makers, Apple was able to handle the drop much more effectively. A function of this could be the fact that Apple has much more control over supply then its smaller rival.
I have a non-Ipod MP3 player, with a 20GB drive. I love services like Napster and Yahoo! where you can download all the music you want. Apple does not allow this, and charges 99 cents an MP3\AAC file, while Yahoo! charges 79 cents. They have the same selection of music. People just don't know there are great MP3 alternatives, and can be a little cheaper in price. They immediately think "Knock off!" if they do see one. People may also be afraid of purchasing something else, because they will be called losers by their peers if they come to school with a non-Ipod MP3 player. The Creative Zen Vision:M won the 2006 CES Best in Show and the Best Mp3 Player category. I really think they make a superior player to the Ipod.
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|I think this has to come down to marketing. The Zen Vision: M is one hell of a competitor, but nobody really knows about it. They have to inform the public about their advances.
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|This is total drivel from a creative president, it just doesnt wash at all and seriously doubt he thought about what he said and therfore doubt him.
""There was a drop in flash memory prices in the quarter, with a precipitous drop in prices at the end of the quarter," he said. "This had a significant adverse effect on our sales in the quarter, and resulted in lower revenues, lower gross margins and inventory write-downs in the period."
Something must be apparently wrong for this company to suffer from a decrease memory costs, since if this is the expensive part of the product and its costs got down then something has to give. It beggers the question as to if they lowered the retail price of the unit like everyone else did and then made a profit, or ...... did he prefer an increase in memory costs ? Whould he have just switched words in his excuse ? Was it in fact the reason ?.
I last bought creative when I bought a AWE32 long long ago. None of there graphic cards have inspired me and i found them to be more expensive then the competition. As for there other products like mp3 players then i admire there desision to go to head with the ipod and such but i dont think they stand much of a chances. There brand would be so much like a liability with format problems / features with a market with the names of LG, sony, packard bell, philips, and the various clone brands. I have personally helped a person with a stange packard bell mp3 player unit that refuses to play certain tracks and rushed control and display controls that make accessing features a challange.
I think creatives problems are deeper rooted.
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|My car has an mp3 player as well - but I can't drive my car into the gym, or can I?
Anyway, it's not Creative's fault....the market is just way saturated with the ipod fad, and it's in deep....it's been given as gifts, purchased by 'hype'crazed kids, college students and adults, been given away as prizes, been marketed REALLY well - while I hate Apple, God knows they were smart as hell on this Ipod deal and I admire them for it.
They were, and STILL are the top digital music player maker. And it's nothing about being 'creative' - it's just about being smart and getting the perfect answer for the equation....
You make a product that is 'stylish' in the first place. You strike strategic partnerships with various third party hardware makers to make addon hardware for the product. This ranges from radios that allow it to plug in to them to cars that allow them to become a part of the audio system.
You create an online store which caters ONLY to YOUR product, and make it so your product can only use purchased 'protected' content from that said store and Voila! You have the ipod revolution.
You go further to release version upon version of this digital music player, and continue to be the first to strike industry changes (eq: tv on the ipod, pictures on the ipod, etc.).
Apple's Ipod wasn't the first to play video....it was the first to play video at a great price. While creative and other manufacturers released Portable Video Players....I forget what they were called; they sold them for 400-500 dollars. Apple came out and slammed them with the video ipod, which essentially did the same thing for 250-300.
So in essence, it's about being greedy in the right way. Instead of making huge money on the players themselves (which they still do), they make most of the money on anything sold third party and through itunes, which now sells TV shows also.
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|no they realeased them at higher prices than apple did cause it cost more to make them, creative and archos just didnt have the facilities apple does, so it was less expensive for apple to make them. but i agree the ipod was advertised well.
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|Silent,
While what you say is an entire possibily - I just can't see how. Creative had been into sound hardware for years. If they havent made key partners and vendors that sell them parts for less, then they've been wasting time. If you check out the tech in an MP3 player, it's really not that much. As a matter of fact, apart from a better LCD screen and bigger storage, they're even less expensive to make than cell phones. Creative is well able to sell them for less - the problem is that they just cannot compete with profits. Itunes kills it for them, and the Ipod finishes up the deal.
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|Creative just isn't "creative" enough.
I lost my faith in them when they started releasing "look-alikes". That's just too low for me.
It doesn't help that they were hostile to Apple out of the blue. It doesn't reflect well on the company's image.
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|"It doesn't help that they were hostile to Apple out of the blue. It doesn't reflect well on the company's image."
I think you're on the right track with this comment. I think Sim should have chose his words a lot more carefully. Taking on the top competitor and acting like your its biggest competitor, when in fact, by some accounts you're not in the top five in some markets is just bad business.
His credibility is now down to zero in the media as a result. Creative needs to decide: do they want to continue to press MP3 players, possibly with somebody new at the helm, or attempt to sweep this under the rug...
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|People love buzz words. One year it was cabbage patch, where are they now? One year it was furbies, next it was Magic the Gathering cards, then it was Tickle me Elmo.. I am looking forward to Byte me Big Bird.
iPod is the new "craze". Get one now, everyone has one, they are light weight, easy to carry. You must have an iPod. Get it while you can, supplies are limited!
I get into hype too, I just don't have a use for a portable MP3 player.. especially since I have one in my car.
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