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Creative re-enters graphics market

The computer peripherals maker unveils plans to re-enter the graphics market by taking over loss-making U.S.-based 3Dlabs for $103.7 million.

Creative Technology is set to re-enter the graphics market with the acquisition of 3Dlabs, a graphics processor maker.

Singapore-based Creative Technology Monday announced a $103.7 million bid to take over Sunnyvale, Calif.-based 3Dlabs two years after the computer peripherals maker said that it would concentrate on its flagship audio business and move away from the graphics sector.

Behind the move is Creative Technology's desire to develop graphics cards for the mid- to high-end gaming market, CEO Sim Wong Hoo said. "In the past, we had to rely on graphics chips from other vendors. It was then a high-risk, low-return business, as we did not have control over the product life cycle and the technological roadmap of the chips. Plus, we couldn't effectively manage our inventory," Sim said.

"However, with complete ownership, we believe that we can acquire a higher level of return than in the past," he told reporters this evening. Creative Technology already owns about 28 percent of 3Dlabs.

Traditionally, 3Dlabs caters to the needs of graphics professionals in the computer-aided design (CAD) and digital content creation markets. 3Dlabs' core products--the Oxygen and Wildcat graphics cards--are widely sold to workstation manufacturers such as Sun Microsystems, IBM, Hewlett-Packard and Compaq Computer.

The reach of 3Dlabs' technology will be extended to the mass market, particularly the gaming community, Sim said. New graphic cards carrying 3Dlabs chips are expected to be released toward year-end, he said, declining to reveal a specific product roadmap and price details.

"3Dlabs' chips have a highly scalable architecture which allows for the creation of a family of graphics cards to target new markets. We can scale down the technology to meet the requirements of game console makers, for example," he said, citing Nintendo, Sony and Microsoft as potential customers.

However, analysts were quick to question Creative Technology's move.

An analyst with a European bank told Reuters that it won't be easy for Creative Technology to penetrate the gaming arena. "The company (3Dlabs) is small, relative to the other graphics leaders now. If they (Creative Technology) want to go into the gaming market, it will be a lot more work."

"The acquisition of loss-making 3Dlabs...deviates from Creative's earlier statement on concentrating on its core audio business, and de-emphasizing the highly competitive storage and graphic business," GK Goh analyst Jonathan Ng told Reuters.

3Dlabs on Monday posted a fourth-quarter loss of $8.9 million, or 29 cents per share, compared with a loss of $1 million, or 3 cents per share, in the same quarter a year ago.

The losses in both quarters excluded the amortization of goodwill and other intangibles. Fourth-quarter revenue was $10.1 million, down 58 percent from $24 million a year ago. The company attributed the revenue shortfall to the weak economy and slower sales of its Oxygen line of products.

Irene Tham reported from Singapore.

Reuters contributed to this report.