Who's familar with Microsoft's DirectX software ?
Creative shares plunge 23% on competition fears
It faces challenge from Microsoft's DirectX software
[SINGAPORE] For Creative Technology Ltd, the start of the holiday shopping season has been a rude
awakening.
US shares of the Singapore-based multimedia products maker plunged 23 per cent last week, its
biggest one-week drop in more than a year. It comes at the start of Christmas sales in the US, where at
least one analyst says new products on the shelves this year may be threatening the company's
dominance in the US$1.5 billion (S$2.4 billion) market for computer sound cards.
Analysts at CIBC Oppenheimer in the US say Creative's sound cards -- devices that enhance the
sound made by personal computers -- are being challenged by a Microsoft Corp software interface called
DirectX, which is found in many computer products for the first time this holiday season.
DirectX translates games and computer programs into other sound technologies, bypassing Creative as
a benchmark, they say.
Now game makers and other programmers can write software that can be used with any sound card.
The use of Microsoft's product "marks the shift away from the industry standard . . . which Creative
controlled until recently," CIBC Oppenheimer analyst Lenny Brecken wrote in a Dec 3 report. "We
believe this will enable increased competition in the audio category."
Creative declined comment.
The US accounts for about 57 per cent of Creative's sales, and holiday business is closely watched
because it reflects demand for computer goods. Its flagship product, the Sound Blaster, retails for about
US$75 and accounts for the bulk of its profit.
CIBC Oppenheimer has a "hold" on the stock, and says its price is "more attractive in the mid-teens".
Creative shares trading on the Nasdaq closed on Friday at 20 5/8, up 1/4. The stock also trades in
Singapore, where it closed at $34, down $1. Creative is Singapore's biggest electronics stock.
This isn't the first time competition put a damper on Creative shares. In July, Venture Manufacturing
(Singapore) Ltd pushed Creative's stock 5.4 per cent lower after unveiling a software product, called
NovaStation, which enhances sound on computers.
What's more, computer chipmakers such as giant Intel Corp are making chips that add sound features.
Concern about the competition from new products sent Creative's shares tumbling 36 per cent in the
two months ending April 2. The shares came roaring back after the concern eased, more than doubling
since then.
To be sure, not everyone agrees with CIBC Oppenheimer's view on DirectX.
"There's always going to be some catching up by other technology but Creative maintains the product
advantage," said John Rossi, an analyst at BancAmerica Robertson Stephens in San Francisco who
has a "buy" on the stock and expects it to rise 50 per cent within a year. "It's always going to be
ahead."
Creative has about 60 per cent of the global sound card market since it invented the technology in
1989.
The stock has also been hurt by the economic crisis in Asia and Latin America, which prompted at least
three stock brokerages, including Merrill Lynch & Co, to downgrade earnings forecasts or their
recommendations on Creative.
The downturn is expected to slow computer sales in the region and demand for Creative's cards. --
Bloomberg
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