e.Digital Corporation (fka EDIG)

[milplease]

Repost of a good post from RB

By: GreaterGood $$$
Reply To: None Tuesday, 3 Apr 2001 at 11:54 AM EDT
Post #653876 of 653886


Thoughts on Creative/Edig positions

I do not post on message boards as a rule. This is mainly due to the fact that message boards have deteriorated from their original concept as a forum for the exchange of ideas, to one where deceit and lies are the normal tool used in spreading ones agenda. I doubt the originators of this method of free flowing knowledge ever intended it to be used in this fashion.

That being said, I will tell you exactly what is going on with the recent moves by EDIG, and the competition. That being mainly Creative.

Firstly, however, I must preface with certain criteria. I will not be responding to this post with addition thoughts. You may take anything I say for what you feel it is worth. I have no reason to defend my comments to those of you who have chosen to not invest in EDIG. That would be futile. Your reasons for not investing are varied, but your methods are similar. Nothing I say would have any impact on that, nor do I care to influence your obvious negative bias.

Those of you who have decided to invest your money in EDIG may be able to use any information I give you to strengthen your position, or may in fact decide to pass on it. Your call.

Creative came out with a first generation player. Was it too early? Maybe. The market was still forming when they released product. Their intention was to be first out of the block. This would garner name recognition that would carry them into the content that would follow. Their case was helped by Napster, which released content before the record companies were ready for it. That will be remedied. The concept of free music, however idealistic it may sound, will only cause degradation within the entire industry. Fundamental Capitalism 101 will tell you this. Competition and markets only thrive if there is prosperity, i.e. if you can make a buck doing it.

Creative has made a mistake in not anticipating a second generation player. What I mean by this is they should have had a second generation player ready for distribution. They didn't need one on the market until now, as it is only now becoming an issue, but they should have had one ready as a response to any competition that may try to enter their market space. Saying that they will have a 2G player out by Christmas is probably too late, and may not even be truthful. Why introduce a new player in December? Your major selling season is over, and you will have to discount product in January. Their only recourse is to push back the release until the 2Q of 2002, retool it, and release it as a later generation player.

As far as reducing the price of their current player this is entirely in response to excess inventory in a shortening timeframe. They are aware now of new product that will make theirs inferior. Without an upgrade available for 1G product, and a reduced timeframe to sell excess inventory their only option is to reduce prices.

Problem is most retailers have already booked product out at least 6 months, and unless they receive incentives from Creative to rebate them for this product so the retailer doesn't have to eat the discount in price, then Creative will be forced to watch their players sit on shelves being compared to a better, less expensive player. Creatives 1G players will have to be discounted someday, as they will need to be removed eventually from everyones inventory. Creative has the shorter timeline for this. With sales of 1G slowing, reorders will slow if not stop. Retailers will probably wait till 4Q to discount any slow product, with some waiting until 1Q of next year to discount. Look for addition reduction in prices of Creative online sales as a barometer for excess inventory. Aggressive markdowns of 1G players at their online sights through the rest of the year should mean they are carrying a lot of inventory. Discounting in prices by most or all retailers for 1g players means that Creative is indeed offering incentives to retailers, and is another sign of excess inventory.

As for EDIG, what they have done is fire a shot across Creatives bow. They have said not only are we coming out with a superior product, but we are doing it for less then what was the current price at the time. This forced Creatives price restructuring. To top it off EDIG said that they will introduce a 3G player with voice activation by 4Q. What EDIG is saying is they want to own this Christmas selling season. Will they? Maybe. Their timing is perfect. Creative has been caught with soon to be outdated inventory, and new product too far out to be effective this Christmas. If EDIG can have their player out on retailer shelves by August they will have plenty of time to garner sales momentum going into Christmas. It appears that they will be able to do just that with product shipping this Q. The August deadline is not etched in stone, but it is considered the norm for new product release gearing up for Christmas sales.

On a side note don't be discouraged if their 3G player released is changed. By stating what their 3G player will do, and when it is available they are basically telling the competition to "Catch us if you can". Anyone coming with 2G competition will have to factor in that their timeframe for selling 2G product will be only 6 months before 3G might be released. Another reason for Creative to pull 2G product release back until they have something better, or cheaper in price. Their 2G will be coming out after EDIG's 3G player. Although price will be a factor, Creatives product will already be inferior to current product on the market. Not good when your in the "cutting edge" business.

EDIG's 3G product may be released as a compliment to 2G product thereby keeping EDIG's player in the forefront as the standard, or it may be delayed because there is no particular reason to release it. This would be due to strong sales of their 2G product, and no new threat to their space as the dominate player. We already know that 3G will have voice capabilities. Anyone challenging with a new player will need to incorporate that into their design at the minimum to insure a sales life for their product.

It's entirely up to EDIG now. They must deliver on their challenge. Yes, Creative is wounded at this time. EDIG needs to deliver another blow by releasing product, before Creative can react with new product. Marking down existing product at this time means they are worried about getting stuck with these players. Stating their 2G player will be out in December means they don't really have one yet that will compete with new product being released.

As stated before I will not respond to statement, or questions to my post. I will however post if I see anything that should change the current direction that these two companies are taking. Good Luck.