Creative Technology Ltd.

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Creative Technology Ltd.

31 International Business Park
Creative Resource 609921
Singapore
Telephone: (+65) 6895-4000
Fax: (+65) 6895-4999
Web site: http://www.creative.com

Public Company
Incorporated: 1981
Sales: $805.9 million (2002)
Stock Exchanges: Singapore
Ticker Symbol: CREAF
NAIC: 334119 Other Computer Peripheral Equipment Manufacturing

Creative Technology Ltd. is a living legend in the global computer industry. The creator of the famed Soundblaster series of sound cards—one of the pioneer products of the multimedia revolution—Creative has maintained its dominance of that market segment with the success of the Audigy series of sound cards, launched in 2001. Yet Creative has expanded its focus beyond the PC world to embrace what it calls the Lifestyle Digital Entertainment market (LDE), launching a range of products including the Nomad line of MP3 players; computer speaker systems, under its own brand name as well as under higher-end subsidiary brand Cambridge Soundworks; digital cameras; and, in 2003, the Prodikeys, which combines a computer keyboard with a 37-key music keyboard. These efforts have helped reduce the company’s reliance on its core sound card business (the company is also the leading supplier of OEM sound chips and cards to the computer industry), which nonetheless generate 44 percent of total sales, which slipped to $805 million in 2002 (from $1.2 billion the year before). Nearly half of the company’s sales are generated in the United States and elsewhere in the Americas; Europe represents 32 percent of sales, with Asia making up the remainder. The company also produces Chinese-language and bilingual software for the Singapore market. Other subsidiaries include -mu Systems, a leading maker of sound synthesis products. In late 2002, Creative Technology, which had pioneered the 3D graphics market in the mid-1990s, acquired U.S.-based 3Dlabs and launched its first new graphics card, the Wildcat VP, under the 3Dlabs name. Cofounder Sim Wong Hoo remains the company’s chairman and CEO.

Blasting to Success in the 1980s

Creative Technology was founded in 1981 with an investment of $6,000 between childhood friends Sim Wong Hoo and Ng Kai Wa. Both Sim and Ng, who had formed a 30-person harmonica orchestra in college, had backgrounds in engineering. Following graduation, Sim held a number of jobs, including a stint on an offshore oil platform, and along the way taught himself how to program computers. An early project consisted of attaching speakers to a microcomputer and writing software that enabled the computer to produce sound.

Creative Technology started out in a small store in a shopping mall in Singapore, at first selling computers and providing computer training services, particularly for the Apple II computer system. Creative decided to enter the computer business itself, and began designing its own computer based on the Apple II design. In 1984, Creative Technology released its first computer, the Cubic 99, which, based on a dual processor system, was compatible with both the Apple and CP/M operating systems—that computer, which featured its own sound chip that enabled voice synthesis and playback, became known as the “Talking Computer.”

Sim and Ng were joined by Chay Kwong Soon in 1986. By then, Creative had invested some $500,000 into the development of a new, IBM-PC compatible computer, dubbed the Cubic CT. Specifically developed for the Singapore market, that computer featured a Chinese-language operating system capable of translating documents from and to English and Chinese. The Cubic CT also provided color graphics—a rarity at the time—and, especially, a board designed by Creative that enabled true audio reproduction, a first in the computer industry. Yet the Cubic CT proved complicated and not entirely reliable, and nearly forced the company to fold. As Sim later acknowledged: ’ had hoped that a multilingual society like Singapore would need a multilingual computer. I was wrong. Also, I realized by looking only at Singapore, we were just like a frog looking at the sky from the bottom of the well.”

Despite the failure of the computer system, Creative Technology continued to develop its sound card, shifting its focus from language reproduction to music. The resulting sound card was called the Creative Music System. The company also recognized that the U.S. market, which already dominated the world computer market in terms of sales, was its likeliest route to success. In 1988, Sim moved to California, establishing a subsidiary, Creative Labs, and vowing not to return to Singapore until the company was successful. As Ng revealed to BusinessWeek, “He told everybody that he would not come back unless he made $1 million selling 20,000 of our music soundcards. Everybody thought that he was crazy.”

Yet Sim recognized the potential of the small, but growing, market for computer games. In 1988 Creative brought out a new version of its sound card, called the Game Blaster. Sim signed a number of game developers to create games making use of the sound card’s features. The Game Blaster, which provided stereo sound to PC-compatible computers, was an instant success. By the end of 1989, Sim had more than met his goal, as the company’s sales neared $5.5 million.

By then, however, Creative had created computer history. In November 1989 the company launched its newest sound card, the Soundblaster. That board, which provided 11-voice FM synthesis, recording capability, and a MIDI-compatible joystick port, revolutionized the PC market, almost singlehandedly launching the multimedia era. The success of the Soundblaster was aided by the release of Intel’s 386 processor and the graphics-based Microsoft Windows 3.0 operating system. By the end of 1990, the Soundblaster was the number one-selling computer add-on product. The following year, the company’s position in the PC industry was consecrated when the new-generation Soundblaster Pro sound card was adopted as the industry’s multimedia standard. From then on, all games and sound cards were required to be “Soundblaster-compatible.”

Creative had continued to develop other products, including PJS, a Chinese operating system, accompanied by Views, a word processing and desktop publishing application supported by a base of 70,000 Chinese characters, both released in 1989. The success of the Soundblaster series, however, led the company to expand its multimedia product line. At the time, computers were generally sold as bare bones systems—users seeking sound and other multimedia support were required to install add-on devices. Creative took the initiative, launching the first in a line of Multimedia Upgrade Kits, which added sound cards, CD-ROM drives, and multimedia software to PCs.

Creative quickly found itself confronted by a number of competitors—and even playing catch-up, as others released the first 16-bit sound cards at the end of 1991. Creative launched its own 16-bit card, the Soundblaster 16, which also emulated full-duplex (simultaneous recording and playback) in 1992. The strength of the Soundblaster name enabled it to retain its dominance of the sound card market. Into the mid-1990s, as more and more games—and software in general—were released on CD-ROM, sales of the company’s upgrade kits swelled.

Searching for a Successor in the 1990s

Creative went public in 1992, becoming the first company from Singapore to list on the NASDAQ exchange. The listing enabled the company to acquire the technology it needed to continue to enhance its core sound card line. In 1992, Creative teamed with -mu Systems, which had been developing a new generation of wavetable synthesis technology—enabling the truer reproduction of instrument sounds as well as the creation of unique sounds. The partnership resulted in the release of the Wave Blaster add-on board for the Sound Blaster 16 series.

Creative acquired -mu Systems itself in March 1993, paying nearly $54 million. The growth of Sound Blaster sales worldwide prompted Creative to form Creative Pacific Pty in Australia in a joint venture with that country’s Compumart. The company launched another joint venture for the Japanese market that year, Creative Media KK, in partnership with I-O Data Device. In Europe, meanwhile, Creative acquired computer products distributor Westpoint Creative, which was renamed Creative Labs (UK) Ltd. The following year, the company opened manufacturing facilities in Dublin, Ireland, through subsidiary Creative Labs (Ireland).

Creative’s success was remarkable. By 1994, the company’s revenues had topped $650 million. In that year, Creative listed its stock on the Singapore stock exchange as well. A year later, the company’s sales had soared past $1.2 billion. Yet Sim and Ng had recognized their increasing vulnerability as a one-product company. The rise of multimedia had brought a swarm of often lower-priced competitors. At the same time, PC manufacturers were moving to adopt multimedia features, including CD-ROM drives and sound chips, as standard equipment on new PCs. Creative was able to impose itself as the market leader in the supply of OEM sound chips and cards, yet these products sold for far lower than its premium-priced retail line.

Creative’s search for a successor for its sound card success led it in a variety of directions. The company began manufacturing its own CD-ROM drives. When it could not keep up with the rapid developments in drive technology, however, it was forced to abandon the effort, dumping its inventory and taking a loss of more than $30 million in 1995. At the same time, its share price had slumped by some 75 percent.

Other diversification efforts proved equally fruitless. In 1993, the company had acquired ShareVision Technology Inc., releasing a line of desktop videoconferencing products in 1994. That year, the company purchased modem maker Digicom Systems Inc., and released the Phone Blaster line in 1995. Yet Creative was unable to impose itself in either market.

Company Perspectives

Creative —Continuously reinventing itself! Not satisfied with resting on our laurels, we believe in the necessity of transformation and will always strive to deliver the latest digital audio products that promise exceptional quality and an unforgettable user experience. Creative’s philosophy —breaking down boundaries, taking digital entertainment for an enhanced digital lifestyle.

Creative saw more success with its entry into the video card market, launching what it claimed was the first 3D-capable graphics card for video games, the 3D Blaster in 1995. The following year, the company added a second line of add-on video accelerators, the Graphics Blaster. Yet the company was unable to replicate its sound card success, and its share of the graphics market, in the face of rivals such as 3dfx, Matrox, ATI, and Nvidia, remained rather low. Nonetheless, the company ranked as a key player until the end of the 1990s, and the graphics card came to represent more than 20 percent of its sales. Creative’s losses and its difficulties finding a new direction led to disagreements among its cofounders, and in 1995, Ng and Chay both left the company, leaving Sim alone at the helm.

Lifestyle Digital Entertainment Company in the 2000s

Yet Creative had misjudged the strength of its brand name in its core sound card market, as its fears of losing market share proved unfounded. Indeed the Sound Blaster line continued to dominate the audio market through the end of the decade, particularly with the huge success of the Sound Blaster AWE 64 line, released in 1996. That success was followed by the even more successful Sound Blaster Live line in 1998. By then, the company had extended its Upgrade Kit line to include DVD-ROMs, sound and graphics cards capable of enabling DVD playback through the computer.

The continued success of the Sound Blaster line led the company to refocus itself as a sound company—despite a foray into the Internet and e-commerce market in the late 1990s and early 2000s, which met with limited success. Instead, Creative began developing its own line of speaker systems to match its sound cards, a move that was enhanced in 1997 when it acquired noted speaker manufacturer Cambridge Sound works.

Creative also was preparing a leap into another audio market with high potential—that of MP3 players. As part ofthat effort, the company acquired Opti Systems Inc. in 1997 and Silicon Engineering in 1998. Then in 1999, the company debuted its first portable MP3 player, the Nomad. The company also released its own line of popular “webcams,” which led it to develop a line of digital cameras in the early 2000s.

The slump in the Internet and high technology led Creative to shut down most of its Internet ventures and reorganize its operations again. The company refocused on extending its core product line—which now included its newest generation of sound cards, the Audigy line launched in 2001—into what it called the “Lifestyle Digital Entertainment” (LDE) market. As personal computers were increasingly moving out of the home office and becoming the heart of home entertainment systems, Creative’s strategy called for it to leverage its world-renowned brand name beyond the PC market, taking the company into head-to-head competition with the world’s giant home entertainment appliance manufacturers.

By 2003, Creative had prepared a line of some 20 LDE products, including speaker systems, cameras, MP3 players, and sound cards. The company also had acquired graphics card maker 3Dlabs in 2002, reentering the graphics card market—by then dominated by ATI and Nvidia—with the launch of the Wildcat VP. Despite a slump in sales that year, from $1.2 billion in 2001 to just $805 million in 2002, Creative Technology and leader Sim Wong Hoo remained one of the rare survivors among computer industry pioneers.

Key Dates

1981:: Sim Wong Hoo and Ng Kai Wai found Creative Technology as a computer seller and training store in Singapore.
1984:: Creative releases its first company-designed computer, the Cubic 99.
1986:: Creative releases the Cubic NT, which features color graphics and stereo sound reproduction.
1988:: Sim moves to the United States, founds subsidiary Creative Labs, and begins marketing the Game Blaster sound card.
1989:: Creative releases the Sound Blaster sound card, revolutionizing the PC market.
1992:: Creative goes public with a listing on the NASDAQ stock exchange.
1993:: The company acquires -mu Systems, Inc., incorporating its wavetable technology into its sound card line; the company acquires Share Vision Technology and Digicom Systems in an attempt to diversify into the videoconferencing and modem markets.
1994:: Creative lists its shares on the Singapore stock exchange.
1995:: Creative launches its first graphics card product, the 3D Blaster, the first - card for PC video games.
1997:: Creative acquires Cambridge Soundworks and launches a line of multimedia speaker systems; the company acquires Opti Systems Inc.
1998:: Creative acquires Silicon Engineering.
1999:: Creative launches the first in the Nomad line of personal MP3 players.
2001:: Creative launches a new generation of sound cards, the Audigy line.
2002:: Creative acquires 3Dlabs and re-enters the graphics card market.
2003:: Creative announces a line-up of 20 new Lifestyle Digital Entertainment products.

Principal Subsidiaries

Broadxent, Inc. (U.S.A.); Cambridge Soundworks (U.S.A.); Creative Advanced Technology Center (U.S.A.); Creative Future Computer Co., Ltd. (China); Creative Labs (Portugal); Creative Labs A/S (Denmark); Creative Labs GmbH (Germany); Creative Labs (HK) Limited (Hong Kong); Creative Labs, Inc. (Canada); Creative Labs, Inc. (U.S.A.); Creative Labs (Ireland) Ltd.; Creative Labs NV (Belgium); Creative Labs Pty Ltd. (Australia); Creative Labs (Pty) Ltd. (South Africa); Creative Labs SA (France); Creative Labs Sdn Bhd (Malaysia); Creative Labs SL (Spain); Creative Labs Sri (Italy); Creative Labs Taiwan Co., Ltd; Creative Media KK (Japan); Creative Technologies Scandinavia AB (Sweden); Cubic Electronics Sdn Bhd (Malaysia); Data Stream KK (Japan); E-mu Systems, Inc. (U.S.A.); hifi.com (U.S.A.).