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Creative Technology won the battle but lost the war

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Singapore’s Sim Wong Hoo, was famous for building Creative Technology (CT) from scratch. In the 80s and 90s, the SoundBlaster audio cards produced by CT was selling like hotcakes and propelled Sim from a struggling entrepreneur to Singapore’s youngest billionaire.

In March 2000, CT’s shares was even trading at record high of $58. Now, the share price is languishing at $1.00. Has Creative Technologies won the battle but lost the war?

As a Singaporean engineer, obviously I hope Sim can do well and make Singapore world-famous again. His SoundBlaster audio cards had put Singapore on the global map and proved to the rest of the world that Singapore is capable of creating world-class innovative engineering products as well.

But it is pity that IT is a very fast-paced and ruthless industry. The rapid evolution in the technology development led to cheaper, more powerful and better integrated computer audio systems than CT’s SoundBlaster. This gradually marked the start of the decline for Creative Technology.

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In 2006, Sim Wong Hoo made Singapore world-famous again by winning a legal dispute against Apple, which agreed to compensate Creative Technology $100 million over patent infringement. Back then, Apple’s CEO Steve Jobs claimed in a press release that “Creative is very fortunate to have been granted this early patent”. Steve Jobs was proven right as Apple shrugged off this compensation and scaled new heights with every version of the Ipod. Creative’s Zen MP3 players were simply no match for Apple’s Ipod, which really changed the game for the music industry.

The most frustrating thing is that even though Creative Technologies have won the epic battle against Apple, it never build on its early success in product innovation. Perhaps Singapore’s Sim Wong Hoo lost to the late Steve Jobs, in terms of vision. At the peak of Ipod sales and popularity, Apple had already moved on and progressed into the development of Ipad and Iphone. Steve Jobs even predicted outrageously that Ipod will be obsoleted in the near future, which it did.

Should CT have invested the $100 million more wisely on research and development? Of course hindsight is always 100% and nobody would have predicted the outcome accurately. But technology is always a wildcard and in the corporate world, it can be very unforgiving.

Even though CT had been dishing out dividends to investors over the years, the decline in its share price more than offset the total dividends. Just imagine this. From $58 to $1 per share. This represents a massive wealth destruction for CT’s long-term shareholders who held the share from 2000 till now. This is especially so as investors would have purchased the shares in board lot of 1000 shares.

A review of Creative Technologies only revealed more concerns for this once-mighty IT company. Revenue has been dropping alarmingly for the past 5 years, from $234 million in FY2012 to $114 million in FY2016. On top of this, CT has been losing money for the past 3 years. Unless CT come out with another best-selling product, things could become worse very soon.

Can Creative Technology rises from the ashes again? I don’t know. A lot actually depends on the technology and market trends. Management also plays a big role because it is important to have a strategic vision on future consumer’s needs. Steve Jobs possessed that ability and subsequently won the game. Sim Wong Hoo needs to figure this out.

For long-term investors of CT, cutting losses may not be an option because of the hefty losses incurred. But then again, it is important to gain lesson out of it. Have you diversified the risk and did you study the trend? Sometimes big boys’ movements play a part too.

 

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