Singapore company`s Zen players just the beginning, says firm`s CEO

Benny Evangelista, Chronicle Staff Writer

Monday, August 1, 2005

In November, Creative Technology Ltd. CEO Sim Wong Hoo declared ``war`` on Apple Computer Inc., brashly predicting his firm`s MP3 players would knock the ultra popular iPods down a peg or two.

So far, that war has proven more costly for Singapore`s Creative Technology, which in late June warned investors to expect a fourth-quarter operating loss because of softer than expected sales of its MP3 players. Creative lays claim to second place worldwide for MP3 player sales, but it`s a distant second behind Apple`s iPod, which outsells its competitors by a 3 to 1 ratio.

Yet in an interview in San Francisco last week, Sim said his long-term vision isn`t just to conquer the iPod but to get Creative`s technologies into every home entertainment device, including DVD players, cable set top boxes and home theater systems.

``Last year I declared war on Apple, but actually I was thinking of something bigger,`` Sim said. ``The war is in the living room. We are going after the living room.``

Sim, 50, who founded Creative Technologies in 1981, was in town to help promote several new products, including a new $400 Zen Vision, which plays MP3s, videos and photos. The device would help Creative, which has its U.S. headquarters is in Milpitas, counter a rumored but still unannounced Apple iPod video player.

The Zen Vision is part of a line of handheld Zen digital media players that have gained visibility for Creative among mainstream consumers. Since December, Creative has sold about 5 million units of Zen and Zen Micro MP3, which in the Bay Area are featured in colorful billboards often placed near Apple`s famed silhouette iPod billboards.

Apple, however, has sold more than 20 million iPods since 2001, including 6.5 million in the second quarter of this year alone.

Creative originally made its mark with its SoundBlaster audio cards installed in multimedia computers.

The firm`s Nomad Jukebox, which used a 6-GB hard drive to store music, beat the iPod to market by one year. But according to the research firm In- Stat, Creative`s share of the worldwide MP3 player market was only 9 percent by the end of 2004, although In-Stat analyst Stephanie Guza said that share has been increasing since the introduction late last year of the Zen Micro players that compete directly with Apple`s iPod Mini.

The centerpiece of what Sim calls a shift in his company`s business model is new audio processing technology called Xtreme Fidelity, which he believes will extend the company`s reach beyond computers and computer-related devices.

Xtreme Fidelity is designed to create fuller, richer sound reproduction in standard devices such as headphones, CD players, DVD players and video-game devices. Sim said the technology will even work with competing iPods.

Creative plans to release details about new X-Fi products later this month. Eventually, Sim hopes to license the technology to makers of other consumer audio products and to professionals who create entertainment products that rely on audio, such as movie studios, music producers and video-game developers.

Sim hopes the push creates a new image for the company so that in five years, ``if you think of digital entertainment, you would think of Creative.``

Creative faces stiff competition from the biggest names in computers, including Microsoft and Intel, that are also making a move on traditional home entertainment product makers like Sony and Samsung.

The stakes are huge: the Consumer Electronics Association estimates U.S. sales of consumer electronic products such as digital televisions, DVD players, cameras and music players will hit a record $125 billion by the end of 2005.

Guza said the marketing of Creative`s Zen Micro has helped create greater brand awareness for the company, although not to the degree that the iPod has boosted Apple`s brand. But she said it`s too soon to tell whether Creative`s push into the digital living room will be successful.

``I imagine Mr. Sim will want to put his dollars behind that effort and not toward flashy advertising for MP3 players,`` Guza said. ``Maybe if he did back the Zen Micro for a bit longer, he could establish additional brand recognition.``