Creative Technology (Cube customer) news....................
RESEARCH ALERT- DMG says Creative speculative buy
SINGAPORE, Sept 26 (Reuter) - Deutsche Morgan Grenfell (DMG)
said in a research paper made available to Reuters on Friday
that it recommended Creative Technology for
speculators but underweighted the stock on a 12-month basis.
On Friday morning, Creative hit a new high of Singapore
$38.80, up S$1.20, continuing Thursday's surge.
"For speculative buyers, we see a short term trading
opportunity because of the valuations and strong holiday second
quarter," said Greg Tarr, technology/electronics analyst at DMG
Singapore.
Tarr, who issued the paper to clients on Monday, said he
was, however, "uncomfortable with the stock's long term
prospects due to new emerging technologies in the market place."
Other analysts said retail investors were buying Creative in
anticipation of its first quarter results.
Tarr said a new 3D graphics card launched by Creative this
week was perceived to help it compete in the big league as well.
He based his speculative recommendation on Creative's strong
sales of its core AWE64 sound card and expected an initial
success for Creative's 8008 sound chip with original equipment
manufacturers (OEMs).
Creative's second quarter was typically its strongest due to
the holiday October-December period, he said.
"We are forecasting 2Q EPS (earnings per share) to come in
at US$0.74 cents in late February or March," Tarr said.
But over the long term, Tarr was underweighting the stock.
"PC manufacturers are considering a software solution as
mainstream PCs will have 300 MHz Intel chips to handle the
increasing load," he said.
Software sound would cut costs for OEMs and allow them to
offer more for less, he said.
Tarr said Creative's dependance on Digital Video Disks
(DVDs) and graphics products had risks.
He said there were many variables in the DVD market, among
them software availability and competing recordable DVD-RAM
products.
In the long term, Creative's sales may flatten and gross
margins could drop with emerging competition, Tarr said.
"We are forecasting gross profit margins to drop from 27.5
percent in FY97 to 25.9 percent in FY98," he said.
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