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Mon, Aug 28, 2006 - Page 11 News List

Creative, Apple deal stuns investors

NEW DOOR OPENS The agreement reached last week could see the Singaporean company turn into a lucrative components supplier for the world's No. 1 MP3 maker


Rick How, sales executive at the Sim Lim IT store in Singapore, displays two popular brands of MP3 player, Creative, left, and iPod, in May last year. Apple and Creative stunned investors on Wednesday when they announced a settlement in which the US-based firm will pay Singapore's Creative US$100 million to end a dispute over patented technology.


Creative Technology may have lost to Apple Computer in the battle for global MP3 player dominance, but it could gain new markets for its speakers and headphones under a settlement deal, analysts said.

The Singapore company has paid dearly in its unsuccessful bid to challenge Apple in the digital music player market, slipping into the red for the year to June with a loss of US$118.2 million.

But Apple and Creative stunned investors on Wednesday when they announced a settlement under which the US-based firm will pay Creative US$100 million to settle a dispute over patented technology used in its iPods and Nanos.

The deal ended a budding legal battle that began earlier this month after Creative was awarded what it referred to as a "Zen patent" on technology used to select and sort songs in its Zen music player.

Part of the deal allows Creative to join Apple's "Made for iPod" program, meaning it will make and market its own line of iPod accessories -- a lucrative business, according to analysts.

"We think selling accessories for iPod is a cottage industry by itself," said Carey Wong, a technology analyst with OCBC Investment Research, citing estimates that the market is worth US$4 billion.

"The company is always looking at new opportunities and I think this is a good opportunity that they can go into. It looks quite good because the market is huge," he told reporters.

Creative chairman and chief executive Sim Wong Hoo acknowledged in a statement that the settlement with Apple "opened up significant new opportunities" for his company.

The firm's participation in the "Made for iPod" program should provide market opportunities for Creative's speaker systems, headphones, earphones and the future family of X-Fi audio enhancement products, Sim said.

"Apple has a huge ecosystem for its iPod and with our upcoming participation in the Made for iPod program, we are very excited about this new market opportunity," Sim said.

Jonathan Koh of United Overseas Bank agreed that Creative's products would gain new markets under the deal, calling the US$100 million payment a "recognition of Creative's proprietary intellectual properties and technologies."

"We expect the positive development to create buying interest for the stock. Other makers of MP3 players may also have to consider licensing the technology from Creative or work with Creative," he added.

Some analysts said it was unlikely that Creative would abandon making MP3 players altogether, while others said it was too early to predict the company's next moves.

"They will still do MP3 players. It's too big a category for them," said Jonathan Ng of brokerage firm CIMB.

But Creative still faces an uphill battle to get its business back on track after investing heavily in the last two years to challenge Apple's dominance in the MP3 market, analysts said.

Creative gained global fame for its SoundBlaster card for personal computers, but its follow-up products have struggled to compete.

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