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Creative Technology to offset losses by cutting operating costs

Creative Technology to offset losses by cutting operating costs
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First Published: Wed, Aug 08 2007. 10 59 AM IST
Updated: Wed, Aug 08 2007. 10 59 AM IST
Singapore: Creative Technology Ltd. , which entered the digital music player market in 1999, posted a wider fourth-quarter loss because of competition from Apple Inc.’s iPod and Microsoft Corp.’s Zune.
The net loss in the three months ended 30June swelled to $19.3 million, or 23 cents a share, from $12.7 million, or 15 cents, a year earlier, the Singapore-based company said in a statement today. Sales also fell 28% to $165.2 million.
Shutting down unprofitable units
The loss is Creative’s fifth in six quarters as CEO Sim Wong Hoo shut unprofitable units and farmed out production to bolster earnings. Creative, the maker of Zen players and X-Fi sound cards, reiterated today it will return to profit by year-end with new products to offset the iPod, which has sold 110 million units since being introduced in 2001.
“The sector has always been marked by intense competition and Microsoft is not even the biggest or fiercest competitor,” said Patrick Yau, a Singapore-based analyst at Macquarie Securities, who rates Creative “underperform.” “What Creative needs to do is to bring down expenses.”
Drop in share prices
Shares of Creative fell 2.2% to S$6.60 as of 11:30 a.m. in Singapore, the lowest since September 1996. Before today, the stock had lost 34% this year, the worst performer on Singapore’s benchmark Straits Times Index, which gained 11% in the same period.
The loss included $2.4 million in restructuring expenses, the company said, without giving details. Operating expenses fell to $51.3 million in the quarter from $58.4 million a year earlier.
Competitor Microsoft’s strategy
Microsoft, the world’s largest software maker, used price cuts to bolster sales of the Zune to challenge the iPod, Creative said. Sales in the Americas accounted for 30% of Creative’s total revenue in the quarter ending 30June, down from 46%a year earlier.
Some U.S. retailers offered rebates of as much as 20% for some Creative music players to boost sales, he said.
Market shares of iPod
The iPod had 68.9% of the U.S. market for digital music players in March, according to researcher NPD Group Inc. Sandisk Corp. held 11.2%, while Creative’s share was 3.6%, followed by Microsoft with 2.5%.
Creative Technology said that it had a fourth quarter loss due to weaker US sales but a payout from Apple helped the struggling Singapore high-tech firm return to the black in its fiscal year.
For the three months to June, Creative Technology said it suffered a net loss of $19.3 million, up from the year-earlier loss of $12.7 million, while sales fell to $165.2 million from $230.9 million.
“During the quarter, although we were able to reduce our operating expenses to $51.3 million, we still suffered an operating loss, primarily resulting from a drop in sales in the US market,” said Craig McHugh, president of Creative Labs Inc, the company’s US subsidiary.
The company said 30% of fourth quarter revenues came from the Americas, which comprises of mainly U.S sales, compared with 46% a year ago.
Will reduce operating costs and push up profitability
McHugh said the company will continue to work on reducing operating expenses and is targetting break-even in the current quarter and hopefully a return to profitability in the three months to December.
For the year to June, the company made a net profit of $28.2 million compared with a loss of $118.2 million in the previous year despite a fall in revenues to $914.9 million from $1.1 billion.
A $100-million payement from Apple Inc. to settle a dispute over patented technology used in the U.S tech giant’s iPod and Nano players helped Creative return to the black, the Singapore firm said.
Founded in 1981, Creative has struggled to challenge Apple’s iconic iPod in the digital music player or MP3 market where it has invested heavily to challenge the U.S firm.
The company gained fame for its Sound Blaster cards that allowed personal computers to be used as home entertainment centres but it has since struggled to come up with a world-beating product in consumer electronics
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First Published: Wed, Aug 08 2007. 10 59 AM IST