Creative Technologies

22 Jan 2009

The buzz over Creative's mysterious marketing campaign for a new product has died down as quickly as it has made tech journalists sit up and take notice. But at least the teasers and vague emails the company sent out to the media generated a lot of buzz. Creative, after investing "a billion dollars" and "10,000 man years of R&D effort" on the Zii chip, must be feeling quite satisfied to have gotten extensive coverage in tech blogs and newspapers.

Creative claims that the Zii chip is a step forward in "stem-cell computing." It is a system-on-chip with a flexible architecture that can accelerate multimedia and graphics. It is about the size of your palm, but can run at 10 gigaflops per second, and uses less power than modern processors.

What does this really mean? Creative, which unveiled the Zii at CES 2009, used the chip in a CCTV security camera that can process 30fps high-definition video and in a set-top box that can play high-definition content. Besides these applications, imagine the small-sized Zii chip bringing high-definition video to your mobile phone, mp3 player, netbook (those small laptops like the Asus EEE PC), or camera.

While some tech journalists say the Zii chip it is not as revolutionary as Creative claims, others have been more receptive and see it as Creative's one shot to get back into the ring with the big boys.

But before we get ahead of ourselves, let's look at Creative's fundamentals and find out whether it's a value stock. According to Reuters Knowledge, Creative's price to book ratio (P/B) is 0.65. This is lower than our minimum requirement of 1, so it gets a tick here.

Creative does not reveal its outlook, but in the Form 20-F that it files with the United States Securities and Exchange Commission, it discusses its business risks at length. Although lacking in specific numbers, its very detailed disclosure deserves at least a question mark for outlook.

For FY2008, Creative declared a dividend of S$0.14. This comes up to a dividend yield of 3.4%. The figure is higher than our minimum requirement of 2%, so Creative gets a tick here.

Creative's free cashflow has been positive for the past three years. It generated US$53.3 million in cash from operations in FY2008 and after reinvestments, was left with US$29.22m in free cash flow. For positive free cashflow, it gets a tick.

We could not find Creative in the Business Times Corporate Transparency Index, so we have to give it a question mark. To recap, Creative gets 3 ticks and 2 question marks in our value stock criteria.

Back in the 1990s, Creative Soundblaster audio cards were on almost every computer but competitors and imitators flocked to the market and Creative lost its status as market leader. After that, Creative has been trying to find a niche to generate more revenue and profit. It settled on mp3 players, but was soundly beaten in the market by Apple's iPod. The company has not been performing well at all.

Last March, it sold and leased back its headquarters in International Business Park. Earlier this month, Creative revealed that it shed 2,700, or almost half, of its workforce during the last financial year. And it announced last Monday that it was winding up its Australian operations and basing them in Singapore as part of its streamlining efforts.

In fact, Creative was unprofitable 4 years out of the past 10 years. It was in the red for FY2008.

The launch of the Zii chip will signal a new direction, and hopefully, brighter future, for this homegrown company – it already has partners like MicroStar International (makers of MSI computer motherboards), digitalMediaNet (digital entertainment service provider), ASTAK and Grandeye (security cameras).

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