Creo, A Critical Assessment – the original Andy Tribute article.

Following drupa, both Michael Mittelhaus, a highly respected German based consultant, and I, both wrote pieces stating we saw a change happening in CtP. This was that thermal CtP was no longer being seen as the only long-term CtP solution. Instead violet diode enabled visible light CtP was a major success at drupa, and was a real alternative. It was likely to increase its market share in the future at the expense of thermal CtP. As expected these comments, in particular those of Mittelhaus, drew immediate scorn from certain thermal CtP vendors, and in particular from Creo. It is interesting that Creo takes any opportunity to decry any form of CtP but thermal based CtP, with what is confusing and usually incorrect information.

I remember when I became the first person anywhere to write about the potential of violet diode, long before any products had been announced (in those early days in 1999 we called it blue diode as we had never seen an operating diode at that time and did not realise it output violet colour light). At that time Dan Gelbart of Creo referred to my article as a “red herring” and attempted to confuse the market with comparisons to expensive argon ion blue gas lasers. Since then Creo has continuously attempted to pour scorn on the violet diode developments. It is interesting that the “red herring” of 1999 is now having a massive impact on Creo’s business. In the CtP business, the one company that will be most hurt by the success of violet diode CtP is Creo, so naturally it will do anything in presenting misinformation to derail the progress of violet technology. It is interesting to see that of the major plate suppliers, even KPG who have up to now have had a thermal only plate strategy, is fully expected to introduce a violet photopolymer plate later this year. How much longer can Creo keep its head buried in the sand ignoring what is really happening in the market?

This article however is not about CtP developments, but is about Creo as a company, and what I see are the problems it is facing. I am not writing this as an isolated commentator. Financial analysts in North America who track the performance of Creo for their clients regularly contact me for discussions. These analysts are all concerned about aspects of Creo’s business and how it affects their client’s investments. According to certain analysts figures it is interesting to note that since the acquisition by Creo of Scitex’s prepress business, its total market share of CtP in USA (including the Scitex business) has dropped from 72% in 1999 to 32% in 2003. It has lost significant share to Screen who are now estimated to have a market share approaching 30% in USA. In Europe the situation is somewhat different and I have an estimate of market share for Creo around 25%. In Europe the impact of violet technology is greater, and Agfa, Esko-Graphics, Fujifilm, Heidelberg and Screen have very strong distribution to increase the competitive situation. In my opinion Creo have lost market share not only because of increased competition, but also because their products are no longer as competitive as before.

It is this point that I find very interesting to assess what is happening. Apart from the VLF format Magnus, introduced at drupa, Creo have hardly introduced a “new” CtP product for years. I wonder what on earth the company’s huge R&D spend is achieving. It is my understanding that there was a joint development under way with Heidelberg for a Trendsetter II system that was targeted for introduction at drupa 2000. This product would have been manufactured by Heidelberg for worldwide sale. This joint development ended when the joint venture with Heidelberg was terminated. It would seem the product has just appeared from Heidelberg as the Suprasetter. The only difference in it is the Heidelberg imaging heads replacing the Creo SquareSpot head. Following the termination of the Heidelberg joint venture, Creo took the Scitex Lotem and added the SquareSpot head to it to make the Lotem Quantum. This is now the top of the line Creo four and eight page CtP unit. I believe that the reason for this taking over from the Trendsetter is the Lotem’s superior plate handling, plus inline plate punching.

Creo has been very successful in taking the SquareSpot imaging head, first introduced in 1995, and both improving it and using it in other applications. In the late 1990s I referred to as a superb piece of technology. It now has much more imaging power for higher speed and handling lower sensitivity plates and other materials. Within Creo it is also used in flexo imaging, where Creo is the number two supplier of flexo CtP systems. SquareSpot heads are also supplied as an OEM component and used in other vendors systems. This includes the DicoWeb press from MAN Roland, and in the Think and Acigraf gravure cylinder imaging systems. It is also used in the Heidelberg Speedmaster 74 DI press, but is likely to be replaced by Heidelberg’s own imaging heads in future. SquareSpot was also used in the Komori DI press that appears to have been withdrawn from the market. In most cases Creo has lost out to Presstek in selling imaging technology into the DI press market.

In most cases Creo has not been successful in trying to use its SquareSpot imaging and thermal technology in other markets. It had a subsidiary company, Creo Ltd in Israel that was making a direct printed circuit board imaging system. The product was used to image a resist coated blank PCB to image the signal lines onto the PCB. This resist was a unique thermal resist, whereas other suppliers to this market used standard UV imaged resists. It is my understanding that while this product worked on imaging the thermal resist, there were many other problems that could not be resolved. The product was terminated and Creo Ltd was closed. I noted that the technology of the thermal resist was brought back into the main Creo business, and this appears to be the base technology used in the Creo Acigraf Exactus gravure imaging system.

If one looks at Creo’s business it appears that it is fuelling its growth through acquisitions and a move into the printing plate business. Its huge R&D expenditure (13.7% of net revenues over the past three years) has done little to stimulate growth. It has failed to build its business in the digital front-end area of digital printing with its Spire controllers. Despite now operating in this market for around eight years, it still has only one customer, Xerox. It has attempted without any success to penetrate EFI’s business in this area. This is not to say that Spire is not a good product. It is a superb product, but it appears companies do not want to do business with Creo. This again is a major problem in that the company has difficulty in working together with other companies. In the past agreements with Agfa, Heidelberg, Kodak, Printcafe, and perhaps other companies have ended, sometimes acrimoniously. Xerox is perhaps one of the few companies where a long-term working partnership has worked. Perhaps this is because Creo needs Xerox, whereas Xerox could easily do with Creo.

This brings me back to the Creo finances. It is interesting to note that they have just released a profit warning for the 3rd quarter of 2004, despite having earlier stated that drupa results were in excess of their expectations. The company appears to have an up and down ride of profits and losses, and there are regular adjustments made to earnings. One analyst wrote to me with the following.

“The string of losses produced are rather incredible, and any profits are barely a down payment on them. Would be nice to see financial reports that don't include phrases similar to “pro forma” -- their exact phrasing is.... “Adjusted earnings is a non-GAAP measure that excludes equity loss on investment, restructuring and business integration costs, intangible assets amortization and their tax effects. Further information and a full reconciliation are provided in the Statement of Adjusted Earnings and in a note later in this news release.”

Creo is basing much of its future projected business growth on the printing plate business. It states it can supply almost a quarter of the world's need for thermal printing plates after spending six months making acquisitions and forging alliances, Chief Executive Amos Michelson said. Printing plates and products may help Creo boost sales by two-thirds by 2007 and add to profit, he said. While global sales of pre-press equipment and consumables are each worth about $3 billion a year, a typical customer will spend twice as much on consumables as equipment over the lifetime of the plant, Michelson said. “We found ourselves selling the razors, which is a money- losing operation for our competitors, while someone else was selling the razor blade,” Michelson said. “The only way for Creo to get a fair share of profits is to have our own share of consumables.” Revenue from consumables doubled in the second quarter ended March 31 to $17.5 million from a year earlier, accounting for about 11 percent of total revenue. What appears to worry the financial analysts is the likely profitability of the printing plate business, and whether Creo is generating growth by undercutting its competitor’s prices. Its competitors also have much deeper pockets in the event of a price war taking place, and far more sophisticated worldwide sales and distribution operations. One analyst made the following comment to me.

“In my view shareholders have not had enough key information to judge managements and the companies performance. Would management still be in place if shareholder were aware market share had been more than halved? While shareholders are unaware of key business metrics, financial metrics to judge how profitable the company is are missing. We know what revenues are by Equipment, Service, Consumables, but we have no information on profit by segment.”


I believe Creo today is facing problems. It has seen its major business decline substantially in terms of market share in CtP and digital workflow. It is now more of a technology follower than technology leader. It is not operating in what is probably the fastest growing segment of its market, which is violet diode CtP. It is not generating growth in its main business areas despite a very high percentage of its revenues being spent on R&D. It is failing to penetrate the growing digital printing business where it is only the number three supplier of DFEs within the Xerox business space. It has failed to develop new business areas in printed circuit boards and spray on coating and imaging in offset printing. While it has some brilliant technologists in many fields, it does not appear capable of expanding into new high-technology markets not related to printing. It appears to be relying upon a strategy of building a thermal printing plate business, in a highly competitive industry in which it is a very small player, and hoping that this strategy will refuel the growth in its core business. Is it not surprising therefore that few financial analysts are recommending the purchase of shares in Creo.