Creative re-enters graphics market

By Mantik Kusjanto

SINGAPORE: Computer peripherals maker Creative Technology Ltd. on Monday unveiled plans to re-enter the graphics market -- by taking over loss making US-based 3Dlabs Inc for $103.7 million -- after reducing its exposure in the sector barely two years ago.

Singapore-based Creative, known for its Sound Blaster sound cards, plans to pay one-third of the acquisition in cash and the rest through stock. Creative already has interest of some 28 percent in the US firm, and plans to give cash of $1.20 and $2.40 in Creative stock for each 3Dlabs share.

Initial reaction by analysts to the acquisition was concern whether Creative was making the right move, having taken big losses in the graphics business in the late 1990s. "The acquisition of loss making 3Dlabs...deviates from Creative's earlier statement on concentrating on its core audio business, and de-emphasising the highly competitive storage and graphic business," said GK Goh analyst Jonathan Ng.

"The company (3Dlabs) is small, relative to the other graphics leaders now. So, it's not easy at all. If they want to go into the gaming market it will be a lot more work," said another analyst with a European bank. Creative, whose shares were suspended on Monday morning for the announcement, said the purchase would provide a significant competitive advantage in the graphics space.

Ng said Creative's purchase price for 3Dlab shares, that it does not own, also translated into a high price to book of 4.3 times. Sim Wong Hoo, founder and chief executive officer of Creative, said in a statement the purchase would give the company ownership of high performance graphics technology.

"For the first time, we will own substantial graphics intellectual property and a formidable graphics patent portfolio that will allow us to achieve a higher level of returns...as we re-emphasised the graphics category," he said.

3Dlabs' latest graphics chips would be included in workstations of Hewlett Packard and Compaq computers this year. Sim said he had analysed 3Dlabs' product lines and the company's technology roadmap and he believed it had a significant competitive advantage in the graphics space.

The purchase could be earnings accreted in the first half of the next calendar year, excluding any charges related to the acquisition, he said. "This is a very different opportunity than when we were exclusively a graphics card provider that relied solely upon chips from other vendors," Sim said.

3Dlabs reported an operating loss, excluding inventory reserves and one-time charges, of $6.2 million for the fourth quarter to December against $9,000 profit in the third quarter. Its fourth quarter revenue was $10.1 million compared with $20.1 million in the third quarter.

(C) Reuters Ltd.