Published September 9, 2009

Creative must put weight behind new 'eggs'

By ONG BOON KIAT

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EYE-catching share price movements recently shone a spotlight on Creative Technology's nine-month-old computing chip technology, Zii.

While there could be other reasons fuelling the price hike which started about a month ago, many market watchers felt it was a sheer case of Zii optimism that propelled the counter to $7.08 on Aug 5 - its highest close since March 13 last year.

The share price run-up, which prompted a query from Singapore Exchange, coincided with the launch of the Zii EGG hand-held computer. Perhaps EGG's sleek appearance, looking mildly like an Apple iPhone, helped stoke investor optimism. It certainly got a number of tech blogs, such as Engadget, crooning about the touch-screen gizmo.

It is easy, at this early stage, to make a case for Zii as Creative's next killer application. The potential market size for this platform is huge - think of it as a Lego kit which manufacturers can use to quickly make a wide range of devices, from mobile phones to TV set-top boxes to netbooks.

Just the possible bonanza to be had from owning a sliver of the global smartphone sector - which Gartner has estimated will increase in sales by 27 per cent to 170 million units for revenue of US$57 billion this year - is enough to whet any equipment manufacturer supplier's appetite.

And consumer demand for gadgets looks likely to get a further boost if the expected upswing from the global downturn that everybody is talking about happens soon.

Creative has also made all the right initial noises, by making Zii easy for third-party adopters. It will, for instance, run Google's mobile operating software and Opera's mobile Web browser software, both well-liked by handset makers worldwide. Creative has also inked deals with a number of big-name collaborators including Taiwanese PC maker MicroStar International, boosting the Zii eco-system and creating confidence around its new foray.

On such sure bets rest the expectation of a robust revival of Creative's fortunes. Indeed, some media have been talking up the prospect of Zii-powered smartphones by Chinese manufacturers running Google's Android operating system and giving Apple a run for its money in future.

But having a solid start is not the same as having a revenue stream that can be counted upon. The tricky part is for Creative to take its new 'eggs' one step further - into the hands of end-users and into the rough arena of established electronics giants like Nokia, Apple, Sony and others. To do so, it has to throw its weight behind the Zii platform, even if it means further denting the struggling tech veteran's books in the coming months.

For the full-year ended end-June 2009, Creative revenue fell 37 per cent to US$466.1 million, as demand for its products continued to wane. Despite trimming its fixed assets and headcount in the past few years, and working hard to extract improvements from a number of restructuring efforts, Creative posted a full-year net loss of US$137.9 million for FY2009 - surely a sign of the operational difficulties that Creative will continue to face with its current stable of products.

Zii could offer a different business model for Creative, and time is running out for the long-time Singapore tech poster-child to mount the offensive that could return it to the top echelons of global electronics players.