The settlement of an iPod patent dispute with Apple Computer pushed the share price of Creative Technology up by nearly a fifth on Thursday, but analysts warned the Singapore consumer electronics company still faces an uphill struggle in competing with Apple in the MP3 player market.
Apple agreed to pay $100m to Creative to end all legal disputes over navigating aids for their rival digital music players and promised to market Creative MP3 accessories.
Creative filed a suit in the US against Apple over patent infringement in April, triggering countersuits by Apple.
Analysts welcomed the end to what had threatened to be a protected and costly legal battle that could have distracted Creative’s management as the company stuggles to prevent further losses from its ambitious foray into the MP3 market.
But the $100m settlement by Apple is less than the $127m loss reported by Creative for the first half of the fiscal year as it cut prices for its MP3 players to maintain market share.
Although Apple did not acknowledge that it had used the same system as Creative for navigating songs on music players, it conceded that Creative that been a pioneer in developing the technology.
“Creative is very fortunate to have been granted this early patent,” said Steve Jobs, Apple chief executive. Creative introduced it first MP3 player two years before Apple’s popular iPod.
Apple’s $100m settlement is for the licensing of the Creative technology but it will be able to recover some of the money if Creative licenses the patent to others.
The legal dispute followed a decision last year by Creative to challenge Apple for dominance of the MP3 player market.
But Creative gained less than 10 per cent of the important US market in spite of spending heavily on marketing. Losses mounted because of unsold inventory as sales fell.
The legal settlement with Apple could provide new opportunites for Creative, with the Singapore company providing products as part of Apple’s “Made for iPod” programme.
Creative, which enjoyed rising profits in the 1990s due to its popular Sound Blaster computer sound card, is likely to provide accessories using its Sound Blaster X-Fi technology, which enhances sound quality for digital music players.
Creative said access to the iPod product market would support is goal of becoming the largest MP3 maker after Apple. Creative also believes the legal settlement will lead to the licensing of its patents to other MP3 makers.
But some analysts cautioned that Creative should abandon the MP3 player market and focus on niche products for the sector instead.
Creative is facing increased competition in the MP3 player segment, with Samsung and Sony offering rival products and Nokia adding MP3 functions to its mobile phones. Creative closed 19 per cent higher at S$11.40.