Creative Technology’s share price has increased by more than 25% following the death of the company’s founder and CEO, Sim Wong Hoo. As we mourn the passing of one of Singapore’s most prominent inventor and entrepreneur, you may be perplexed by the sudden increase in the company’s share price and what you should do next, so let’s have a look at it today.
Who is Sim Wong Hoo?
Creative Technology is a Singapore-based firm specializing in developing and producing audio and multimedia products. The company was founded in 1981 by Sim Wong Hoo, and it has grown to become one of the leading technology companies in the world.
One of the key milestones in the history of Creative Technology was the development of the Sound Blaster, a sound card for personal computers that was first released in 1989. The Sound Blaster became the de facto standard for audio on PCs, and it helped establish Creative Technology as a leading player in the audio industry.
In the 1990s, Creative Technology expanded its product line to include a range of multimedia products, such as portable MP3 players, digital cameras, and other consumer electronics. The company also entered the gaming market with the release of the Creative Fatal1ty FPS gaming headset in 2005.
The firm became the first Singaporean company to be listed on the Nasdaq in 1992 and at its peak, had its shares traded for more than $64 on the Singapore Exchange.
However, the company’s good fortune did not last long. When OEM PCs started integrating sound boards into the motherboard, Sound Blaster was relegated to a niche product, drastically reducing the company’s sales.
In 2006, the firm sued Apple for patent infringement on the iPod and was awarded a US$100 million settlement. This, however, was insufficient, as its product eventually lost out to the much more popular Apple’s music player.
Creative‘s fortunes nosedived in the face of competition and changing markets. Soon it voluntarily delisted from the Nasdaq in 2007, and its SGX shares dropped below $1 in 2017.
Since then, the stock price has never recovered, though the business has lately made headlines with its new Super X-Fi (SXFI) technology, which is supposed to emulate a multi-dimensional sound experience in headphones. An immersive experience that allows headphone users to experience sound as it would be heard in real life.
Apart from that, other devices that the company is working on include wireless speakers, wireless headphones, amplifiers, cameras, and many more.
Things aren’t looking good for Creative Technology
In the financial report, we could also see that, as the industry transformed, Creative Technology’s failure to adapt resulted in a reduction in revenue over time.
Earlier, there has been some encouragement with the group’s financial performance improving since 2020, possibly reflecting a period when individuals had to spend longer periods of time indoors for work and entertainment as outdoor activities were limited.
Sad to say, the company’s troubles did not end, as an unfavorable macroeconomic environment in 2022 pushed the company back into negative growth. During the first half, it was hampered by shipment delays, increasing freight costs, and global shortages of semiconductors used in its products. Following that, in the second half, draconian measures within China disrupted its OEM, lengthening sales and design cycles, while rising energy costs and inflation rates dramatically reduced the overall demand for discretionary products.
Likewise, observing its bottom line, a similar story can be painted. Creative Technology has reported pre-tax losses for the four most recently completed fiscal years, prompting SGX to flag it.
Things are definitely not looking good.
Underlying problem
Looking at its financial statements, we see that the ‘selling, general, and administrative’ expenses have already exceeded the gross profit. In fact, further down its financial report, most of its expense comes from staff compensation, which comes in at US$28 million in 2022 versus US$19 million in gross profit.
Going forward, for the company to return to profitability, it must either drastically increase its revenues without massively increasing expenses or it must cut costs through retrenchment/wage reductions. The former would be preferable, but given that economies are expected to enter into recession this year and that the demand for consumer discretionary is expected to fall, Creative Technology may have to make the difficult decision of laying off some employees or trying something else to prove to investors that they can return to profitability.
3 Reasons for Creative Technology’s share price surge
Nevertheless, there has been no clear indication that it would return to profitability. So, why did the share price of Creative Technology skyrocketed?
- The company is trending once more.
With a declining share price, Creative Technology was a forgotten stock until Mr Sim’s death, which brought the company back into the spotlight. This might be a catalyst as retail investors reconsider this company, as well as a display of support.
- New company’s direction
Another reason is that investors are hoping that the new leadership will chart a new course for the company, which could include growth plans to benefit investors. With Mr Sim’s death, Creative Technology may very well look to expand into new sectors or products to help bring the company around.
- Sales of Mr Sim stakes in Creative Technology
Last but not least, there is speculation that Mr Sim’s interest in Creative Technology will be put up for sale soon. Given that the company has been significantly undervalued as a result of its recent performance, this might potentially realise the true value of the share price, offering investors a quick way to profit.
Should you invest too?
With these reasons, should you then invest in Creative Technology now?
Given the company’s current situation and future prospects (or lack thereof), Creative Technology would still have to prove itself before investors can be convinced that it could return to profitability.
The recent increase in share prices is most likely due to speculation about the prospective sale of Mr Sim stakes, which could help the company realize some value. Unfortunately, all of this is guesswork, and for those who did not hop in earlier on, it would have been too late now.
Conclusion
Mr Sim is unquestionably an inspiration to today’s young entrepreneurs. His drive to invent and innovate put Creative Technology and Singapore on the map in the early days.
While you may not be able to bag Creative Technologies today, it is hoped that you will be inspired to achieve greater feats and change our world.
