“Creative Technology Ltd., whose Nomad and Zen MP3 players aim to compete with Apple’s iPod, probably swung to a quarterly loss and wrote off unsold stock, after consumer demand softened and stiff competition hit margins. Singapore-based Creative also suffered in the September quarter as Apple Computer Inc. cut prices by up to 20 percent to clear excess stockpiles, and analysts said Creative’s fundamentals are likely to worsen,” Jennifer Tan reports for Reuters.

“CLSA Asia-Pacific Markets analyst Atul Goyal who has set a 12-month price target of S$7.40, more than 40 [percent] below Friday’s closing price of S$12.90, estimated that Creative’s stockpiles stood at $451 million, or six months’ of sales. ‘Given the short product life-cycle for MP3 players, we believe a large part of this inventory is bound for a write-off,’ he added. Creative’s gross margin probably shrunk to below 20 percent in the June quarter, from 32.9 percent in the year-ago period, and compared with Apple’s iPod margin of around 20 percent, analysts said,” Tan reports.

“Last month, Apple beat expectations with quarterly profit jumping five-fold to $320 million. Revenue surged 75 percent to $3.52 billion. Creative has produced some of the strongest contenders to the iPod, but Apple still leads the disk-drive music player market. Analysts estimate it has about 60-70 percent market share, compared with up to a quarter for Creative… Creative Chief Executive Sim Wong Hoo pledged $100 million in worldwide marketing spending this year and promised to out-market its rivals, but analysts are sceptical that Creative has the resources to effectively compete against the bigger players. The stock has fallen 26 percent in the last 12 months, underperforming Apple shares which have nearly trebled in the same period,” Tan reports.

Full article here.

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