An Apple A Day Keeps Creative Away

But Creative is still bent on ripping the core out of Apple.

This article's Return on Investment:

- Creative faces fears at home that it’s biting off more than it can chew
- But US analysts worry it will be Apple to come off second best
- Analysts get ready for “softness” in music player market

Openly pitting yourself against the market leader hardly leaves any room for failure.

And while Creative Technology did not “fail”, it’s still some distance away from its marketshare target of selling 40% of the world’s digital music players.

Since declaring an MP3-player war on Apple’s iPod, Creative has managed to double its market share.

But Apple still dominates, with about 70% of the market.

SIAS Research analyst Alfie Yeo tells phoneCAST Creative has achieved the objective of its marketing campaign, “but results aren’t up to what the market expects them to be, so they got a beating from investors.”

The company admits gross margins have been squashed because they’ve slashed prices to compete with Apple’s price cuts for its iPod and iPod Mini.

Creative’s high marketing expenses have also been weighing on its margins.

What’s more, Chief Executive Sim Wong Hoo saying he will continue his aggressive marketing campaign and rise to the challenges of competitive pricing.

He believes he will make more money in the longer term if he perseveres and improves his market position.

But local analysts are skeptical that Creative has the marketing muscle to take on the big boys in Apple and other consumer electronics players, although Yeo says he has to “give it to Creative for their guts.”


Creative's Zen Micro

For the three months ending December last year, Creative sold two million units - close to half of Apple’s sale of 4.5 million players.

That’s shortly after they started to compete seriously for the MP3-player pie.

“What’s unfortunate is its price war with Apple because Apple can afford to lower margins but not Creative,” Yeo says.

Ironically, analysts on the other side of the globe are looking at Apple in the same way Yeo is looking at Creative.

They think Asian device-makers are giving Apple a run for its money, coming up with newer and cheaper alternatives to the iPod.


Apple's iPod Mini

Investors are concerned that once iPod sales slow, Steve Job’s baby might become yesterday’s news.

Unless, of course, it manages to find something else to keep its name up in the ranks of consumer electronics.

Their fears aren’t unfounded.

For starters, digital music players will soon have to contend with the likes of Sony’s Playstation Portable - a video game device that plays music and movies as well.

Because of such technological advances, industry-watchers can only see MP3 players getting cheaper.

The only way makers can still stay profitable in this is through sheer volume sales or cutting down on operating expenses.

Secondly, related businesses are guiding downward as they anticipate “softness” in the music player market.

One such company is Nasdaq-listed Synaptics - which provides the click-wheel interface for the hard-drive based iPod.

Such worries are now keeping investors at bay.

As prices continue to fall and MP3 players become an increasingly mass-consumption product, makers are hard-pressed to come up with new gadgets to please the public, and investors.

In that sense, Creative seems to have the upper hand because it has been introducing a whole plethora of computer peripherals and products since its Zen Touch.

Apple, on the other hand, would count the iPod as its first real foray into the consumer electronics arena.

And that, for a specialty computer-maker like Apple, is a whole new ballgame.