More challenges ahead as Creative turns the corner
It looks like Creative Technology is turning the corner.
After a few quarters of poor results, worsened by taking the iPod head on in the MP3 space and a series of patent lawsuits against Apple, the company yesterday said it had returned to profitability.
The net profit of US$92 million in the second quarter to December was a far cry from the net loss of US$21 million the company posted in the previous quarter.
However, this was largely thanks to a settlement payout of US$100 million from rival Apple, which contributed US$82 million to the bottom line and boosted revenues to US$434 million for a 76 per cent increase on the previous quarter.
The numbers look good enough for investors to lift the stock's price initially on the Nasdaq.
On the Singapore Exchange yesterday, its shares gained as much as 2.8 per cent but ended 1.9 per cent lower.
While the Apple payout helps, the company has been scrambling to cut costs, rationalise its products and improve its fortunes, as any troubled organisation is accustomed to doing.
There are plans to slash about 6 per cent of its 5,000-strong workforce and close unprofitable operations.
Restructuring expenses may take their toll but the Singapore and Nasdaq-listed company should be able to tighten its margins and stay profitable.
Beyond the numbers, the market has been asking questions of the company.
Creative has been fighting a debilitating war against the iPod which far outsells Creative's Nomad and Zen audio players.
Its faces an uphill battle in a crowded field that also includes instruments from Samsung Electronics and Sony Corp, although sales of its Zen series during the Christmas season were a creditable 2.5 million units, helping to raise gross margins to its target of above 20 per cent and lift the quarter's earnings.
Apart from the Apple windfall, the settlement turned the rivals into partners, opening a revenue stream for Creative as a made-for-iPod supplier of accessories such as speakers and headphones.
Creative could also forge supplier deals with other technology players such as Microsoft and Samsung. But perhaps its forte is not in accessories.
Since entering the technology world with its sound cards in the 1990s, Creative has firmly established itself in the digital entertainment marketplace with a range of hi-tech equipment.
But, it has been some time since Creative created a product that dominates the market like the SoundBlaster, which boosts audio quality in computers.
So, apart from sound cards and portable audio and media players, what is around the corner?
The challenge for Creative is to come up with a cutting-edge trump card that will - as Creative's founder Sim Wong Hoo would say - 'blow you away'.
