Beleaguered Creative Technology reports largest operating loss in at least five years

“Shares of Creative Technology, which has been losing in a battle with Apple Computer’s iPod, fell the most in nine months after the company reported its largest operating loss in at least five years,” Andrea Tan reports for Bloomberg News. “Earnings at Creative, which gets two- thirds of sales from music players, are slumping as Apple’s iPods outsell the Singapore-based company’s Zen and MuVo devices five-to-one… The company had an operating loss of $55 million to $65 million in the third quarter ended March 31 because of a “drastic drop” in flash memory prices, Creative said in a preliminary earnings statement Wednesday. Creative expects sales of $220 million to $230 million, a fall of as much as 34 percent.”

“Creative’s chief executive, Sim Wong Hoo, is trying to trim Creative’s reliance on music players, introducing products such as new Sound Blaster cards, which enhance audio played through personal computers,” Tan reports.

Full article here.

[Thanks to MacDailyNews Reader “ds” for the heads up.]

MacDailyNews Take: Won’t be long now…

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33 Comments

  1. First! A little sad to be a Singaporean, when Mr Sim keeps on trying to be “creative”. In Singapore, the advertising for Creative products are almost everywhere…but I still support mac and ipods of course :p

  2. How does a drastic drop in supply prices hurt profitability?

    I’m confused. Maybe I took one accounting class too many in college, because that logic just don’t add up.

    The drop in supply prices doesn’t affect the huge inventory of players Creative has already made. So if you have a warehouse full of players made with memory that cost $X, you lose money when the cost of memory drops to $(X – Y). You can try to keep the players priced the same, but some competitor who decides to pass on his supplier cost savings to the consumer will eat your lunch. This doesn’t consider global accounting rules that may require you to show your inventory value as a loss when supplier costs drop.

    Is it any wonder that the most profitable companies try hard to limit their inventory? Dell is famous for it, and I think Apple does an amazing job as well. When you build products no one wants (Think GM or Creative) your balance sheet gets savaged.

  3. There was a time when I could remember everyone wanted a Soundblaster 16 card for their PCs. They were *THE* standard for gaming sound. They were always great cards, but as the top company, they got cocky, and complacent. Sim Wong Hoo made the company lose focus on it’s strengths, and blew money on an endeavor that was doomed to lose. I am afraid it is already too late for Creative, but I hope they can regain some of the awe and wonder of their greater Soundblaster days.

  4. The sad thing is, there’s no reason why Creative can’t survive. All they need to do is what some other iPod competitors have done: accept that you have a meager market share and build your business around it. SanDisk sells a fraction of what the iPod does, yet they’re doing dandy. And of course, Apple proved for years that you can be profitable with a small market share, so long as you treat those customers well and keep them loyal.

    But noooooooo! Creative had to declare war on Apple. They had to take iPod down, no matter what it took (never mind that they had neither the design skills nor the marketing savvy to pull it off). They just couldn’t let go of the fact that they were #1 before the iPod came out. They were obsessed with putting the Nomad brand back on top.

    And now they’re paying the price.

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