SINGAPORE'S most entrepreneurial company has announced disappointing results for the second quarter of the fiscal year. In the three months ended December 31, Creative Technology, the international market leader in computer sound cards, saw net income fall to S$21.6 million (about HK$114.5 million) from $33 million a year earlier. Sales for the quarter more than doubled to $400.9 million, the company said at the weekend. The decline in profit was primarily a result of one-time charges. Earnings per share were 24 cents, compared with 37 cents in the previous corresponding quarter. With one-time charges excluded, net income and earnings per share would be $32 million and 36 cents, respectively. The company took a $7 million write-off because of the acquisition of Digicom Systems and $3.4 million of realised holding losses on marketable equity securities. The losses on equities reflect changes in the price of NASDAQ-listed 3DO, in which Creative Technology has a stake. The company's policy is to report its holdings at market value. In the previous quarter, the company reported a similarly valued gain in 3DO. Analysts said the company's gross margin declined from about 35 per cent a year earlier to 25 per cent. Analysts blamed the growing strength of low-end unbranded sound cards and a change in the company sales methods for declining margins. Creative Technology designs, manufactures and distributes its own Sound Blaster brand audio, video and multimedia computer add-on products. Its Sound Blaster audio cards for personal computers have a 70 per cent share of the international market, and account for about 90 per cent of sales. Analysts said the company's practice of selling the sound cards in Creative Technology upgrade kits had cut into margins. In addition to Sound Blaster products, the upgrade kits contain several other low-margin items, such as CD-ROMs (compact discs-read only memory), which are not manufactured by Creative. The company was now selling 60 per cent of its audio cards through upgrade kits compared with 20 to 30 per cent a year ago, said analysts. In contrast to their disappointment with gross margins, analysts were cheered by the company's success in controlling operating costs. Operating costs for the latest quarter were 15.8 per cent of sales, compared with 19.8 per cent of sales for the preceding quarter. Most analysts were resigned to the fact the company was now in a consolidation phase. The company is unlikely to announce any major products in the coming months. Some analysts said the company would have to enter a new product line for it to maintain sales growth, and to restore profit growth. But other analysts said the company could survive by maintaining its place as market leader and innovator in the sound card business. Meanwhile, Aztech Systems' chief executive Michael Mun said the Singaporean electronics company's sales more than doubled last year, while its profits in the second half were 'much improved from the first half'. Creative Technology is Aztech's major rival in the market for multimedia accessories for personal computers. Mr Mun said he could not be more specific about the earnings ahead of the company's official earnings announcement. Aztech disappointed investors in August last year with news that its half-year net profit fell 20 per cent to $5.95 million amid intense industry competition, even as sales grew 147 per cent to $132 million.