Creative bolstered by $61m deal with tech giant Intel

Creative bolstered by $61m deal with tech giant Intel

SINGAPORE - Singapore's Creative Technology has signed a US$50 million (S$61 million) deal with semiconductor giant Intel.

The move will allow Creative to streamline its business while bolstering its financial position.

The deal involves Intel paying US$20 million to licence certain technologies and patents related to high-performance graphics chips from Creative's wholly owned subsidiary ZiiLabs Inc.

Intel will also pay US$30 million to buy ZiiLabs Limited, which designs semiconductors, including the ZMS chips used in Creative's latest tablet, the HanZpad.

The acquisition of the British unit is expected to be completed by Dec 31.

Creative said in a statement last Tuesday that the book value of ZiiLabs Limited is about US$1.3 million.

After expenses and other costs, Creative expects to recognise net gains of US$26.8 million.

The British subsidiary was part of graphics firm 3DLabs that Creative acquired for about US$170 million in 2002 - and renamed ZiiLabs - to bolster its position in PC graphics.

Creative will retain ownership of the technology and chips developed by ZiiLabs, including the StemCell media processor technologies.

It will also continue to sell its ZMS processors to other firms, said chief executive Sim Wong Hoo, in a statement.

The deal will benefit Creative.

The licensing deal will go straight into Creative's bottom line, allowing it to report an operating profit for the three months to Dec 31.

This will end three years of losses for the company, founded in 1981.

Proceeds from the sale of ZiiLabs Limited will have an impact on the company's net tangible assets, said company secretary and chief financial officer Ng Keh Long in a statement last Tuesday.

Creative has struggled amid tough global competition, while cost-cutting measures and the 2008 sale of its Jurong headquarters for $200 million have failed to stem the red ink.

Its losses deepened in the financial year ended June 30 to US$84 million from US$47 million the previous year.

Mr Sim told The Sunday Times in April that the company had spent about $1 billion in research and development over the past 10 years to design new chips called ZMS and other hardware technology for the HanZpad, which targets China's education market.

Last Tuesday's deal with Intel underscores Creative's efforts to focus on its core strengths - audio products based on its pioneering work in sound cards and the HanZpad tablet.

Mr Sim said on that day's statement that advanced development of graphics and media processors would become complex and costly, especially beyond the 28 nanometer process.

This refers to pushing more transistors onto a chip to give smartphones and tablets more computing performance and better battery life with less power.

With costly development out of the way, Creative would be able to focus on designing and marketing more innovative products for customers who wish to make their own tablets.

He said the firm would gain from "increased flexibility".

Partnering with multiple companies would help mitigate risk.

Background story

The licensing deal will go straight into Creative's bottom line, allowing it to report an operating profit for the three months to Dec 31.

This will end three years of losses for the company, founded in 1981.

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