IJ Reilly said:
First, $100 million is load of money for anyone. Time was, not so long ago, that reporting a $100 million quarterly profit was a big deal for Apple. The iPod doesn't "make" $6 billion a year for Apple. That's just revenue. Profits are a faction of that revenue.
This might be a valid point, except that the $100 million payout isn't being charged against profits. Instead, it is being recorded as an asset and ammortized over many years, meaning it will have very minimal impact to the bottom line.
IJ Reilly said:
Second, Creative doesn't "give up" anything but a license to Apple for technology Apple was using before for nothing. No matter how you cut it, the license fee come right out of Apple's bottom line.
I believe this is incorrect. Just because Apple is paying the fee doesn't mean it comes directly out of Apple's profits. As stated above, the licensing fee will be ammortized over several years and thus the impact to the bottom line will be nil.
Secondly, the fee is conditional. If Creative manages to secure other licensing deals, they pay Apple back some of that $100 million. Perhaps all, if the other fees are substantial. That sounds more like a "loan" to me.
IJ Reilly said:
If this can be called a "win" for Apple, it's in their getting this issue squared away relatively quickly, so it doesn't overhang the next generation of iPod releases. The long-term impacts of allowing the suit to drag on could have been considerable, just as it was for RIM. Especially if in the end, they lost.
No disagreement with this. The only thing is that NTP never agreed to pay RIM back part of its licensing fee if it was successful in securing new licensees. And NTP didn't decide to become a maker of Blackberry add-on devices.
By officially becoming a member of the "Made for iPod" program, Creative is basically unofficially pre-announcing that it is exiting the player business (contrary to official denial, which are necessary in order for it to sell of remaining inventory). Zen's lost huge marketshare against Sandisk, of all companies, and there's no way Zen will hold on to what little marketshare it has with Zune entering the scene. Not to mention that "Zen" and "Zune" are phonetically similar, which all but guarantees the situation will be hopeless for the Zen line of players.
Creative realized it makes more sense to extract licensing fees from Microsoft for Zune than try to compete directly as it had against the iPod.
With that exit strategy tucked under its belt, it's now free to focus on creating great iPod accessories, which will require far less R&D than music players, and will actually be profitable.
Apple "lost" all right. Here's a summary from The Motley Fool
Apple Gets Creative
What's more, Apple is allowed to recoup costs if others agree to license Creative's patent. Will there be other deals? It's a good bet Creative will try to secure some; the $100 million the firm is getting from Apple will juice per-share earnings by $0.85 in the current quarter.
Plus, there are plenty of targets, with the biggest and most obvious being Microsoft (Nasdaq: MSFT). Its planned Zune player is expected out before the holiday season. Creative could get ahold of a beta version of the device and, if there's evidence of a patent violation, file suit and petition for an injunction.
Apple would love nothing better, of course. But even if Mr. Softy and other i-wannabes avoid the courts, they're unlikely to avoid the extra time and expense of working around Creative's patent. That, too, is a win for the Mac maker. Well done, Steve.
This is what would be called Pyrrhic victory for Creative. Sure, it looks like they won the battle, but only at such a cost that it ends up being a defeat in the long term.