Mr. Sound Blaster's Quiet Comeback
Will there be a second act for Sim Wong Hoo? Sim is the Singaporean entrepreneur whose Creative Technology Ltd. gave the world the Sound Blaster -- the popular computer audio board that makes those bazooka blasts and pop tunes sound more realistic on your PC. In the early 1990s, Sound Blaster swept through the ranks of computer gamers and music enthusiasts; Creative still boasts 70% of the market for so-called audio add-on cards. "The Sound Blaster sold itself," recalls the Singaporean CEO. "It was easy."
In recent years, however, it hasn't been so easy. The market for Sound Blasters is disappearing, and sales of Creative's audio cards and audio chip sets shrank 27% in the 12 months through Sept. 30. Most PCs are now shipped with integrated audio that's good enough for all but hardcore audio buffs. Plus, Sim's repeated attempts to replicate the Sound Blaster miracle have failed. Creative's CD-ROM and DVD drives and MP3 players never caught fire. Creative's revenues plunged from $1.4 billion in 2000 to just $702 million for the fiscal year ending June 30. The company lost $150 million for the 24 months ending June 30, 2002.
Ever resilient, Sim, 48, is scrambling to reinvent his company. This time, he's swallowing his pride to build up what has been a sideline -- contract manufacturing. Sim is already finding big customers. In March, Microsoft Corp. announced that Creative would design and manufacture products for Microsoft's Media2Go, a handheld music-video player that sports enough memory for 175 hours of digital video and 8,000 music files. And analysts say Creative is the manufacturer of Dell Inc.'s new MP3 player, the Digital Jukebox. Sim, though, won't confirm that Creative supplies Dell, and a Dell spokeswoman in Singapore says it's not company policy to name its suppliers.
SLASH AND LEARN
Even before the shift, contract manufacturing made up 15% of Creative's sales. Making it the core business will mean learning to survive on big volumes and razor-thin margins. So Sim is cutting costs by moving manufacturing from Singapore to Malaysia and China and slashing Creative's workforce. Since 2000, he has reduced his workforce by 20%, to about 4,000 people. The cost-cutting measures are working. Creative earned $23 million for the year ending June 30, and analysts at UBS Investment Research project earnings will exceed $60 million this year. Creative's stock price is up 87% from its March low.
Sim is not thrilled at the idea of giving his designs to companies he still regards as competitors. "We have to kill ourselves to win," he laments. But he has an ambitious long-term plan. He hopes to use his relationship with the likes of Dell and Microsoft to learn how to sell Creative products to American consumers over the Internet. He even has notions of setting up a chain of retail stores. "You can say I'm paying tuition to learn how to service customers," says Sim. The question is whether, as Sound Blaster fades, he'll leave himself an opening for his third act.
By Michael Shari in Singapore