Business | Technology
Creative can survive dancing to iPod's tune
Creative Technology's Zen music players will struggle against Apple's popular iPod, but the loss-making firm could have a bright future making sound chips and accessories for its arch-rival and others.
- Reuters
- Published: 00:00 September 7, 2006
Singapore: Creative Technology's Zen music players will struggle against Apple's popular iPod, but the loss-making firm could have a bright future making sound chips and accessories for its arch-rival and others.
Singapore-based Creative Technology has suffered two straight quarters of losses as it battles for market share with iPod-maker Apple Computer.
It must in any case cut costs further by streamlining products and outsourcing some production, analysts say, as fierce competition is about to get fiercer.
Microsoft will launch its Zune media player this year in a bid to unseat the iPod. SanDisk has unveiled a new player with twice the iPod Nano's song storage space for nearly the same cost, and cut prices of its existing models.
Creative has some options beyond the Zen itself. They include supplying accessories like headphones to nearly 60 million iPod users and embedding its next-generation computer sound chip, the Sound Blaster X-Fi, in a wide range of gadgets.
"Creative is unlikely to go bust, but it would probably need to downsize its MP3 business, undergo a rebranding exercise and seek alternative revenue sources in order to survive profitably," said NetResearch-Asia analyst Russell Tan.
"The stand-alone MP3 market is a sunset industry as smartphones and personal digital assistants will increasingly incorporate these functions, and prices will continue to fall."
Some analysts see costs at the root of Creative's problems. "It needs to better manage inventory and procurement of its flash memory, so it won't be badly affected by falling prices," said Claudio Checchia of research firm IDC.
Others say marketing is the key. "The issue with Creative has never been about managing costs, but rather a dismal marketing budget that failed to extend the lead of its ideas into an increasingly affluent consumer market," said CLSA Asia-Pacific Markets analyst Chua Su Tye.
Creative has said it will rationalise its products, improve its supply chain and look at outsourcing more production, in a bid to return to profit by end of the calendar year and restore gross margins to 20 per cent from 14 per cent currently.
This month, it launched three MP3 players with wider screens and video capabilities, together with new webcams and speakers. They offer more colours, features and longer battery life.
Apple's shipments are way ahead
- Apple has shipped over 58.9 million iPods since October 2001, including 8.11 million in the quarter ended July 1, way ahead of Creative, which has sold just 15 million players since 1999.
- Creative's battle with Apple, which sprouted an intellectual property dispute on the side, has decimated the Singapore firm's profits.
- It lost $12.7 million in the fourth quarter ended June, its second straight quarterly loss, albeit an improvement from its $31.9 million net loss a year earlier.
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