Falling sales, reduced production and loss of investors’ interests – for the last decades, these are some of the negative stuff you’ve heard about our homegrown Creative Technology (“Creative”). However, this has not deterred Mr Sim Wong Hoo, founder of Creative, from continuing his fight in the struggling audio business and this year, they are coming back with their latest technology that aims to change the way how consumer experience audio entertainment – Super X-Fi. The Neo Dimension is fortunate to be invited to Creative headquarters to hear first-hand from Mr Sim on this technology.
Announced in the CES 2018, Super X-Fi received positive reviews from the media and audio experts at the event. This latest technology has also been named “Best of CES 2018”. Back in Singapore, this technology has sparked investors’ interests in the company. The stock (stock quote: C76.SI) has jumped more than 300% within a week and the rally does not show any signs of slowing down!
So what exactly is Super X-Fi?
To put it simply, it is a new audio technology designed specifically for headphones to produce an immersive surround audio experience to users. Mr Sim further explains that every person is unique and perception of “good audio” varies person-to-person. This perception of “good audio” is what he called individual’s custom sound map. The beauty of Super X-Fi is that it matches the audio output to the individual’s custom sound map by analysing anthropological features of one’s head and ears.
Creative has invested USD 100M in research on a perfect sound profile. For the past 20 years, they have run countless trials on rooms, sound systems, headphones and test subjects. With the help of an artificial intelligence (AI) engine, the anthropological features of a person’s head are extracted along with the dynamics of the targeted headphones, and the AI engine synthesizes them to create a multi-dimensional map of the desired room acoustics.
Using this synthesized SXFI map, Super X-Fi recreates the audio holography to create a magical listening experience for headphones, custom-made to each individual’s unique physique.
Despite the level of sophistication in the technology, the end-user experience is extremely simple. All users need to do is take pictures of their head with their phone, select their headphone type, and they can start playing.
Technology – Good or Bad?
Before the presentation started, they took images of my head and ears using a mobile phone. Then the technology analyzed the data and mapped a sound profile that is customized to me. I listened to the demo and it was mind-blowing! The surround sound I heard from the headphone was amazing and I even took the headphones off just to confirm that I wasn’t hearing the sound from the physical surround speakers. Judging from the guests’ reactions, they were equally or almost as impressed as I am.
As part of the demo, we get to hear other guests’ sound profiles and indeed, those sounded horrible to me.
We all know that everybody has their own perception on what is considered a “good sound” but no one in the industry could solve this decades-long problem. Creative’s Super X-Fi could be the game changer.
Mr Sim Wong Hoo analogize Creative’s Super X-Fi to a Color TV. He further elaborated, “Before TV you are watching black and white, then the switch of black and white TV to color TV; so we are now witnessing the switch right now!”
A Good Technology = A Good Business?
A good technology is an asset to the company but how much return you could squeeze from this technology depends on the strategies and business models.
For the past decades, Creative has been making losses. In recent years, it has been increasingly more difficult to compete with new and upcoming entrants in the market. The key success factor for Creative’s Super X-Fi would be to gain adoption in the market speedily by licensing this technology to headphones or smartphone markers. Speed is crucial, especially in the technology space.
As part of the plan, Creative will be launching a free Super X-Fi app where users could play downloaded content without purchasing any Creative headphones. Creative hopes to acquire 50 million users.
To get the full experience of Super X-Fi, users can purchase the dongle which Creative plans to sell at a competitive price point of USD 150 to attract consumers.
The free Super X-Fi app and the dongle will be available by mid-2018.
Creative, A Growth Stock Again?
Investors seem to be convinced that Super X-Fi is going to turn Creative around. It makes perfect sense for the company to focus on the headphones market given the projected high growth in the global market. Quoting Mr Sachin Mittal, a DBS analyst in a Bloomberg report, “If the product gains just 0.5 percent share of the global headset market in 2020, Creative would gain revenues of $232 million”
I believe that the growth of the global headset market is inflated in the Bloomberg report. Based on their statement, this puts the value of the global headset market at USD 46B. Several research papers suggest that the global market could be worth USD 11B to USD 20B by 2020 to 2025. Suppose we take a more conservative yet optimistic estimate of USD 20B, that would be approx. USD 100m of revenue by 2023 (more than 100% jump from Creative’s revenue in 2017!).
Without a doubt, Creative is a growth stock. However, high growth essentially means high-risk. The challenge for Creative is to sign their first purchase order to start the first mass-production of the chip. Now, it is hard to predict which headphone maker is going to give them the business. On the flip side, they are competitors as well. The strategies of launching app and dongle are sound but is it good enough for Creative to turn their enemy into Frienemy?
How about licensing their technology to smartphone makers? Smartphone leaders like Apple and Samsung have already started the battle in the audio space. Apple has acquired celebrity headphone brand Beats Audio in 2014 and has started to manufacture their own audio headsets. Samsung, on the other hand, has acquired a US-based audio specialist Harmon in 2016. Ever since then, they have been bundling AKG earphones, Harmon’s subsidiary, with Samsung Galaxy S’s series of phones. Now, the question is, “If not Apple nor Samsung, who else can Creative offer their technology to in the smartphone market?”
To the investors, is the risk worth taking?
Fundamentally, Creative is holding approx. USD 100M of cash and more importantly, it is debt-free as of now. They should have sufficient financial capacity to market this technology for the next couple of years (They should be able to weather through if this new technology fails).
However, this stock is likely to be volatile in the short term which could be an opportunity for speculative traders.
For long term investors, this stock is a high-risk-high-return play. As I have mentioned earlier on, the extreme scenario is unlikely to bankrupt the company, but the high volatility may be of concern to some investors. Based solely on the potential of this technology, this stock could be undervalued but sign of market acceptance has yet to be seen.
Important! Please Read: All comments and suggestions here are purely my opinions. Investors should exercise their own discretions before taking up any positions on this stock.
Also published on Medium.