Confident Creative plays graphics card again
Graphics products could account for up to 20% of revenue in December quarter
From Kenneth James in Las Vegas
CREATIVE Technology, buoyed by the strong response to its biggest-ever product ramp-up, is modifying its "audio-only" focus to enable a new assault on the graphics-card and other related markets, chairman and chief executive Sim Wong Hoo said here last week.
"The main focus now is to sell the Live! Experience with "best of breed' in every area," Mr Sim told BT in an interview in Las Vegas last week at the Comdex Fall '98 computer trade mega-show.
Live! Experience is Creative's buzzword for the integrated multimedia solution built around its latest sound card, Sound Blaster Live!. Incorporating the multimedia leader's "Environmental Audio" technology, it weaves Creative's market-leading 3-D audio and graphics cards, PC-DVD video and Dolby-class speakers into an integrated multimedia offering.
"It's been very well received; you saw the audience," Mr Sim said jubilantly. He was referring to the massive crowds thronging the giant Creative pavilion throughout the day.
The Singapore firm outdid itself this year, building a double-storey mini-complex that included an open stage for Vegas-style live demonstrations of its audio, graphics and PC-DVD products; several booths taken up by games developers and other Creative partners; and -- the piece de resistance -- a 60-person sound-proof theatre to show off its multimedia technologies in an optimal setting.
Mr Sim was quick to point out that the heart of the strategy is still audio, represented now by the Sound Blaster Live! sound card.
And this latest flagship product "has taken off in a big way" with a massive one million units already shipped since production began in September, Mr Sim revealed. "One million (units) in less than 2-1/2 months, that's a lot. We're talking about the biggest ramp-up in our history."
Now Creative plans to build on the momentum by re-entering the competitive graphics card market in a big way. Ng Keh Long, who is vice-president, corporate treasurer, said the company had started producing graphics cards in a big way since the June quarter.
With its latest 3D Blaster line complementing the Graphics Blaster family, graphics products could account for a sizeable 15-20 per cent of total revenue in the December quarter, he said.
Part of the confidence no doubt stems from the inroads the company is making in supplying graphics cards to the so-called OEM, or original equipment manufacturer, market. Earlier this month it announced a contract to provide high-end graphics cards for inclusion in PCs from Gateway, a leading US PC vendor. Creative officials hinted at more OEM contracts to come soon.
Less dramatic but still significant is the ramp-up of other multimedia products like speakers, produced by Creative subsidiary Cambridge Soundworks, and PC-DVD systems, which are touted to replace CD-ROM drives.
An industry insider who follows Creative closely told BT he believes the strategy could raise Creative's gross margins in the coming quarter above the 30 per cent level, "give or take a couple of points". This compares with a 25-plus per cent gross margin in the June quarter and 28 per cent in the previous quarter, he said.
That will be welcome news to Creative employees, who were told by the boss last week that the company would pay them the money saved from a government-mandated 10-point cut in employers' contributions to the Central Provident Fund.
So what could go wrong?
Mr Sim admitted to being "paranoid" about a possible global recession next year, but he believes his team is psychologically ready for the eventuality.
"We have the cash, but we're very careful about credit control. We know this is not the time to expand too fast."
And if the slowdown does hit demand hard? "Then I'll tell my people, "sorry guys, we don't make money this time; but we have the cash to tide us through'."
Even without a major recession, this move away from the "purely audio" focus that gave Creative a new lease of life could prove risky, Mr Sim conceded. But he is adamant that things are very different now from the time when over-diversification, particularly into the manufacturing of CD-ROM drives, almost destroyed the company.
He cited a number of factors. The company now works more closely with partners in the manufacturing process, thus co-sharing risks. Planning is done on a week-to-week basis, so any inventory buildup is discovered early. And the company has built a strong global intelligence network to alert it to any impending industry changes.
The bottomline: "We're very comfortable about re-entering graphics in a big way."
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