“Creative Technology Ltd., the maker of Nomad and Zen MP3 players, said on Friday its quarterly net profit plunged a worse-than-expected 72 percent, as competition with larger rival Apple Computer Inc. squeezed margins,” Reuters reports. “‘Creative’s results were very disappointing,’ said Kim Eng Securities analyst Dharmo Soejanto. ‘This confirms margins are under pressure in the MP3 space due to competition from Apple. The company’s higher operating costs from heavy marketing expenses are also squeezing margins.’ Sharp price cuts of Apple’s iPod mini and the introduction of Apple’s very basic flash players at lower-than-expected prices, pushed Creative’s gross margins to 23 percent, below its forecast of 27 percent, said Craig McHugh, president of Creative Labs Inc., the company’s U.S. unit.”
“Analysts estimate that Apple, which shipped 5.31 million iPods in the March quarter, has a 60-70 percent market share. Apple has also encroached into Creative’s market for MP3 players based on flash memory chips with the launch of the gum-stick sized iPod Shuffle.” Reuters reports. Full article here.
“‘Over the next one to two years, we will see strong growth in the market before consolidation,’ said Soejanto. ‘Samsung has said there will be three top players in this market: Apple, Sony and themselves. I think Creative could be among the top five.'”
Reuters reports, “Creative chief executive Sim Wong Hoo said the company had to lower prices during the quarter in response to Apple’s price cuts. ‘The whole market is at an explosive stage. There are a lot of young users. We need to get them early, with simple flash players. If we lose them to somebody else, we will lose them for life,’ said Sim in response to questions on the firm’s strategy.”
Full article here.
MacDailyNews Take: Wait a second, we’re confused. How does Creative become the “Pepsi to Apple’s Coke,” if analysts “think” they might be lucky enough end up as the number five company in the portable music player market? Sounds more like RC Cola than Pepsi to us. We wonder how Mr. Sim feels about losing “the war” to a product that he has disrespectfully called “worse than the cheapest Chinese player?”
Related MacDailyNews articles:
Apple iPod pressure forces Creative to drop prices on music players – March 01, 2005
Creative’s self-declared ‘MP3 player war’ against Apple isn’t going very well – January 20, 2005
Creative CEO: Apple iPod shuffle ‘a big let-down, worse than the cheapest Chinese player’ – January 12, 2005
Creative declares ‘war’ on Apple iPod, shoots for 40% market share of MP3 players – December 21, 2004
Creative Technology declares ‘MP3 War’ against market-dominating Apple iPod – November 17, 2004
Mossberg: Dell, Rio, Creative ‘iPod mini killers’ lag badly behind Apple iPod mini – October 27, 2004
Creative pushes to become ‘Pepsi’ to Apple’s ‘Coke’ in digital music player market – August 07, 2004