Somebody here earlier suggested that Seligman has huge position in
CREAF. I don't know if Paul Wick still has that position as of now,
but just to remind everybody about what he said about CREAF back in
Nov. is as follows.This may also help alleviate some of the doubts
people have about the company.
Q: What else do you like?
Wick: Creative Technology.
Q: The Soundblaster company.
Wick: Creative reported an outstanding September quarter.
Q: Do they still make sound cards for PCs?
Wick: Sound cards are still the key product. Creative essentially invented
PC audio. About 80% of the company's revenues still come from the
Soundblaster product line. The standard, surprisingly, has not eroded over
time, despite repeated predictions that Intel or Microsoft would eventually
figure out a way to kill it off. The problem is that virtually all PC games
have been written to the Soundblaster standard. No one has been able to
come up with an emulation of Soundblaster that works 100% of the time.
And the PC companies are quite nervous about coming out with a PC that
has the potential for incompatibility.
Q: At one point, this company had been knocked firmly on its behind.
Wick: The stock was absolutely decimated a few years back. The
company made the mistake of getting into the CD-ROM business and
becoming vertically integrated. They got into that business because they
sell CD-ROM upgrade kits with their Soundblaster audio cards. They
realized they made a big mistake when the CD-ROM market went
through a bloodbath over the past couple of years. Creative exited that
business, took a big writeoff. They've since had a significant increase in
gross margins, which have risen from a low of around 10% at the trough to
33% in the most recent quarter.
Q: So, they're making money again.
Wick: The company, in the space of a little under two years, has
generated almost a half-billion dollars of cash. They now have $5 a share
in cash on their balance sheet. They have lots of new products that have
been meeting with some success, including a 64-bit version of the
Soundblaster audio card. They've also got a graphics card, which has met
with a good response in the market, called the Graphics Blaster. And,
maybe most importantly, they have a product that came out October 31 --
a $379 DVD multimedia upgrade kit. At $379, it's far and away the
cheapest in the market and it could be a hot product for Christmas.
Moreover, the stock is cheap, selling at not much more than one times
revenues and roughly 10 times June '98 earnings.
Q: Uh, Paul, pardon me, but what is the point of a DVD upgrade kit
at this point? There's very little software out there.
Wick: The software is coming. The greater storage capacity of the DVD
compared to a CD-ROM will be attractive to some people. It's likely to
be a niche market to some degree. But on the other hand, there probably
will be some people who want it -- maybe they'll install it on their laptops,
and use it to watch movies on airplanes. Their first foray into this area,
which came out earlier this year, was priced at $500 and it sold very well.
So there seems to be some enthusiasm.
Q: The stock is trading ..
Wick: .. in the mid-20s.
Q: And this year, the company should earn ..
Wick: ...about $2.60 a share.
Q: Cheap! Why do people hate this stock?
Wick: It's a combination of things. The company is based in Singapore,
although almost all of its revenues come from the U.S. and Europe. The
CEO doesn't speak English very well. For some reason, it just isn't on
people's radar screens. |
