Thread, Article...Creative's PCI audio coup...
January 28, 1998
Electronic Buyers' News via Individual Inc. : Silicon Valley- For a while, at least, it looked as though chip vendors in the infant PCI audio market might actually escape a challenge from the king of the computer sound business, Creative Technology Ltd.
Despite its best efforts, Creative had not been able to develop a PCI product. And although its Sound Blaster cards claimed more than half of all PC audio sales, Creative's new competitors were operating beyond its grasp.
But that freedom vanished earlier this month when Creative acquired the top PCI audio maker, Ensoniq Corp., Malvern, Pa. Now, the Singapore giant is prepared to bring its clout to bear on the OEM market.
More important, Creative's acquisition of speaker maker Cambridge Soundworks, Newton, Mass., means that Creative now owns virtually all of the components within a PC audio subsystem: the software algorithms, samples, and DSP processing needed to generate audio signals; the chips to package them; and the speakers to deliver sound to the user.
Sim Wong Hoo, chairman and chief executive of Creative, summed up his company's strategy this way: "We believe Creative is now in its best position ever to significantly grow our OEM business. We expect to leave our competition in the dust."
Creative's Sound Blaster and AWE add-on cards, which retail for about $99 to $200, were appropriate in a PC market that values performance and the ability to upgrade, analysts said. Sales of its add-on cards directly to OEMs already totaled about a third of its $1.2 billion annual revenue during fiscal 1997 ended June 30.
But with the rise of the low-cost PC, the retail giant found its cards had become far too expensive. In effect, Creative executives said, they needed to buy a new cost structure.
"For all of our success, we have been relegated to the high end," said Craig McHugh, general manager of Creative's U.S. subsidiary, Creative Labs Inc., Fremont, Calif. "That has limited us to a certain range of PC designs."
"Creative did not have much of a presence in the OEM market, but did not wish to dilute its [Sound Blaster] brand name," said David Toh, an analyst at ING Barings Ltd., Singapore.
Yet, Creative enjoys a strong presence in the chip business. Its subsidiary E- mu Systems Inc., Scotts Valley, Calif., has already announced the EMU10K1 chip, an audio accelerator that will drive the company's forthcoming Sound Blaster Live! cards. So why buy Ensoniq, a PCI chip vendor?
"For all its expertise, Creative couldn't make PCI audio work," said Len Brecken, an analyst at CIBC Oppenheimer Corp., New York. "Ensoniq posed a threat. A hybrid software/ hardware solution could leverage Intel's microprocessors. It was a defensive move."
With approximately $426 million in its cash reserves, Creative's acquisitions are likely to continue as it fills gaps in its product portfolio, Toh said.
Ensoniq will play a dual role as it acts as a research center for Creative and assumes responsibility for its OEM business.
Creative's Sound Blaster name also played a secondary role in the chip market as a technical standard. By dominating the audio market, the Sound Blaster became a de facto standard, virtually requiring other chip makers to include special hardware registers to maintain compatibility.
Creative expects that it will be forced to keep moving the bar upward. " Our long-term goal is to exceed the current level of audio quality on the home PC and extend that into the home entertainment environment," McHugh said.
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Regards, Michael |
