Creative's profits soar on Apple payment
Digital music player maker Creative Technology on Tuesday said profits rose a record 11 times thanks to a lump sum payment from one-time rival Apple over a patent litigation.
Creative posted a net income of $92.1 million, or $1.10 a share, for its second fiscal quarter ended December 31, up from $8.2 million, or 10 cents, during the year-ago quarter.
The Singapore-based firm said revenues rose 8.6 percent to $424.4 million from $390.8 million.
The more-than-tenfold increase in profits stemmed primarily from a one-time licensing payment of $100 million from Apple, which in August ended a tempestuous legal dispute between the two companies over a software patent covering the majority of today's digital media player interfaces.
Apple's paid-up license allows it to use Creative's patented software interface technology in all of its products. In return, Creative, a once fierce rival of the Cupertino-based iPod maker, said it would turn ally and begin designing accessories for Apple's ubiquitous players.
As part of the settlement between the two firms, Apple retained the right to recoup a portion of its payment if Creative is successful in licensing its interface patent to other companies.
The one-time license payment from Apple contributed about $82 million, or 98 cents per share, to Creative's second-quarter net income. Excluding the payment and its investment effects, net income would have been $9.9 million.
Creative posted a net income of $92.1 million, or $1.10 a share, for its second fiscal quarter ended December 31, up from $8.2 million, or 10 cents, during the year-ago quarter.
The Singapore-based firm said revenues rose 8.6 percent to $424.4 million from $390.8 million.
The more-than-tenfold increase in profits stemmed primarily from a one-time licensing payment of $100 million from Apple, which in August ended a tempestuous legal dispute between the two companies over a software patent covering the majority of today's digital media player interfaces.
Apple's paid-up license allows it to use Creative's patented software interface technology in all of its products. In return, Creative, a once fierce rival of the Cupertino-based iPod maker, said it would turn ally and begin designing accessories for Apple's ubiquitous players.
As part of the settlement between the two firms, Apple retained the right to recoup a portion of its payment if Creative is successful in licensing its interface patent to other companies.
The one-time license payment from Apple contributed about $82 million, or 98 cents per share, to Creative's second-quarter net income. Excluding the payment and its investment effects, net income would have been $9.9 million.
Comments
In effect the ~$100m Apple gave them is 2.5 years net profits at once.
It'd be amusing if Creative started making more money from iPod accessories than its own line of players.
Under $40m net profit a year? I thought Creative were bigger than that.
In effect the ~$100m Apple gave them is 2.5 years net profits at once.
It'd be amusing if Creative started making more money from iPod accessories than its own line of players.
I think they will make more money from that...
I wouldn't be surprised if the Creative line started 'disapearing'. Apple just added to its empire.
It would have to be economically viable for Creative. See as Apple has the vast majority of market share I would guess the answer is no, Creative will not sue anyone else.
Regardless, Creative have to defend their patent or lose it. That $100 million is Apple paying Creative to be it's bitch, giving it funds to enforce the patent and at the same time reinforcing the patent. If Apple had won and the patent was overturned then it would have been open season on the iPod interface.
i can't help but feel a little bad for creative, and i think thats why apple went easy on them. historically, they've been a rather important company for consumer pee-cee audio, and lately, microsoft has been screwing them hardcore, both with the release of the zune (playsforsure, anyone?), and by discontinuing support for hardware audio rendering in windows vista. those two actions have pretty much depricated creative's product line, so i think apple was more interested in forming an ally than squashing the little guy, in this case. if you remember, when news of this settlement first broke, both parties made statements about a desire to work together in the future, and creative joined the "made for ipod" program.
In Vista, MS deprecated the DirectSound API, in favour of the Xbox's XACT API. They provides compatibility with older DirectSound applications through a software emulator which doesn't allow for hardware acceleration.
However, there's still the possibility of using OpenAL hardware audio rendering. Creative has released a hardware acceleration driver for select SoundBlaster hardware using OpenAL under Windows Vista.
Regardless, Creative have to defend their patent or lose it. That $100 million is Apple paying Creative to be it's bitch, giving it funds to enforce the patent and at the same time reinforcing the patent. If Apple had won and the patent was overturned then it would have been open season on the iPod interface.
I don't think patents have the enforce-it-or-lose-it necessity that trademarks have.
Apple has several patents on the iPod interface, there was nothing special about what Creative patented that I remember. What I remember was that it boils down to a hierarchical menu system, something that should not have been patented.
Regardless, Creative have to defend their patent or lose it. That $100 million is Apple paying Creative to be it's bitch, giving it funds to enforce the patent and at the same time reinforcing the patent. If Apple had won and the patent was overturned then it would have been open season on the iPod interface.
I don't think patents have the enforce-it-or-lose-it necessity that trademarks have.
Apple has several patents on the iPod interface, and there is nothing special about what Creative patented that I remember. What I remember was that it boils down to a hierarchical menu system, something that should not have been patented. The best explaination I can come up with is that the payoff would allow Creative to harass the rest of the industry and not tie up the company in a protracted legal battle with a lot of negative PR.
I'm still baffled as to why Apple settled. Either way, Creative better put that money into R&D because that 8 million profit average they were getting before isn't going to cut it.
The same reason any company settles, their legal team looked at the situation and advised there was enough of a chance that they would loose in court that settling for less money now was a better option to more money later or even an injunction on the sale of iPods. Afterall, it is the job of the court to decide whether Apple violated a standing patent, not what's in the best interests of Apple or its fans.
I don't think patents have the enforce-it-or-lose-it necessity that trademarks have.
They do. If you don't enforce a patent within 6 years of an infringement (in the USA) then you can not file for damages.
It would have to be economically viable for Creative. See as Apple has the vast majority of market share I would guess the answer is no, Creative will not sue anyone else.
I thought I read somewhere that creative had initiated a suit against MS, but the memory is vague about it.
I'm still baffled as to why Apple settled. Either way, Creative better put that money into R&D because that 8 million profit average they were getting before isn't going to cut it.
Apple settled because they had no case, and they knew it.
It'd be amusing if Creative started making more money from iPod accessories than its own line of players.
I think it's very likely. I would even bet that Creative will have the upper hand with iPod accesories. Id est, Apple will let Creative have a first-hand look at new Apple products before they are released to the Joe Public.
I don't think patents have the enforce-it-or-lose-it necessity that trademarks have.
Apple has several patents on the iPod interface, there was nothing special about what Creative patented that I remember. What I remember was that it boils down to a hierarchical menu system, something that should not have been patented.
This is oversimplified. It's not the hierarchical interface alone that was patented. Even lax accounting at the Patent office would not have allowed that. And, even if somehow it did, it would have fallen easily.
The patent system properly allows several available, patented devices, when used together, and result in a NOVEL result, to be granted a patent for the entire system as used together for the purpose of achieving that novel result.
Without reading the patent in its entirety, or an explanation by someone who does have the background to understand, and interpret it, one simply doesn't know the patent.
They do. If you don't enforce a patent within 6 years of an infringement (in the USA) then you can not file for damages.
Yes. My company (the audio manufacturer) had to be on the constant lookout for infringing works.
But, it can be difficult. If an infringing work is obscure enough, and you can show that there was no reasonable way that you could have known about it within that period, an extention may be granted.
I think they will make more money from that...
I wouldn't be surprised if the Creative line started 'disapearing'. Apple just added to its empire.
Heh. Kinda like Apple "buying out" Creative. I like that 8) ...Given a $100million cost, Apple's Q4'06 and Q1'07 financial quarters still looked solid. Fancy that.
Poor Creative. How the mighty 90's icon has fallen. Now just a small mp3 player maker, soon to be just iPod accessory maker. Now just a small global company in the bigger scheme of things.