Creative needs niche markets for recovery

Not even CEO change may be enough for loss-making Singapore tech company, more important is a better roadmap and new niches to boost bottom line, say analysts.
Written by Liau Yun Qing, Contributor

Singapore-based Creative Technology will need to turn to niche segments to boost its bottom line as the market it has traditionally competed in has become mature and saturated, say market observers.

Commenting on Creative's 14 consecutive quarters of losses, Ng Kian Teck, lead analyst at SIAS Research, told ZDNet Asia in a phone interview that the company needed to restructure its business, whether it is by cutting costs or removing business units that are loss-making. He added that the company will also need to look for new products to boost its bottom line.

Concurring, Jayesh Easwaramony, vice president at Frost & Sullivan's Asia Pacific ICT Practice, said Creative has to look for niches that it can be profitable. He pointed to the portable speaker space as an example where competition is lower and unique products can have good consumer appeal.

"Creative is struggling because most of their product categories are mature," said Easwaramony, commenting on the company's continued losses. "Moreover it is squeezed at both ends, at the higher end of the market by players like Apple and at the lower end by low cost competitors from China."

The MP3 product category which Creative was famous for is also facing a challenge from mobile handsets as many users in the emerging markets use their phones as music players instead of buying a separate MP3 player, said the Frost & Sullivan vice president.

Creative has not responded to ZDNet Asia's multiple requests to talk to executives to understand the company's business strategy for 2012. However, based on Creative's annual report for the fiscal year 2011, the company is betting on the growing tablet market with its Android reference design kits. In his message to shareholders in the report, chairman and CEO Sim Wong Hoo touted the company’s JAGUAR3 reference design kit's compact form and light weight, adding that it also gave partners such as OEMs a low cost and quick-to-market solution by allowing them to make tablets for as low as US$100 each.

CEO change may not be enough to change company
While CEOs of many underperforming western tech firms--such as Research in Motion and Yahoo--have either stepped down or been replaced, Frost & Sullivan's Easwaramony noted that the culture in Asian companies tends to be different from such multinational companies.

"What Creative needs is a strong product roadmap that can change their fortunes," he stressed. "The fact that they have so many quarters of losses indicates some fundamental issues with the company's future and just a CEO change may not be the answer."

Ng added that the decision will also depend on how the company is run. If Creative relies on one person to run the company, it would need to weigh the cost and benefit of replacing the role, he said.

According to Ng, despite Creative being in the red for 14 quarters in a row, the company's high trading capital of S$170 million means that it will not be required to delist from the Singapore Exchange (SGX). He explained that companies that have made losses for three consecutive years will be put on a watch list by SGX if they have an average daily market capitalization of less than S$40 million over the last three months.

Noting that Creative still has a "strong brand", Ng said it is up to the company to choose if it should continue listing itself for public funding but problems might arise from the investors' side. This could include pressure from them to see short term results to raise the company’s value.

Why Apple surpasses Creative
During its heydays in the early 2000s, the Singapore company was described as the world's biggest sound card maker. It even sparred with Apple in the MP3 player space and won a patent case against the Cupertino-based firm with a US$100 million settlement. However, Creative's fortunes went downhill soon and the company delisted from NASDAQ partly due to increasing costs and dwindling trading volumes but kept its listing on SGX.

Commenting on why Apple continued to flourish in the MP3 space, Frost & Sullivan's Easwaramony said Cupertino's multiple variants of the iPod MP3 player has ensured that there is a high quality option for various consumer segments. The company’s "exemplary design and global appeal" are also bonus points and the Apple's iTunes Store enhances customers' experience, he said.

The pressure on Creative has also been heating up from regional players as well, making it harder for the Singapore company to retain the loyalty of its customers.

Singapore-based martial artist Lee Yee Han mourned Creative's fading fortunes. "I'm kind of sad to hear that it is failing since it's a Singaporean brand," she said.

While she used to be a loyal user of Creative's products, she has been turning to Japanese companies for audio-related purchases because of their "competitive pricing".

"[In the past], I usually go to Creative for audio-related stuff," Lee said in an instant-message interview. "[But] the price of its stuff has been pretty high these past few years. I've been getting my audio-related equipment off other recognized brands because of their competitive pricing."

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