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Technology Stocks : Creative Labs (CREAF)

CREAF 0.470

+4.9%

Jan 12 9:43 AM EST

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To: Hitch who wrote (4126)	10/10/1997 5:33:00 PM
From: Chris Sholler	of 13925

Who said chips are a "low margin" business. Look at most (certainly not all) of the semi companies out there and you'll see that their GMs are a hell of a lot higher than anyone in the board business. Generally speaking they "add value" via some intellectual property whereas most board companies (NOT CREAF, they have IP) assemble and distribute other people's IP. A very strong acceleration in chip business would improve margins even further given their higher GMs and lack of any meaningful S&M expenses associated with them. Furthermore, if selling chips hurt board sales than CREAF would be out of business today since, as I indicated in last msg, virtually every PC sold has an audio chip on it. Despite this, people buy add-on boards in the after-market for the simple reason that the technology is always changing. Boards offer you the ability to upgrade your box without the need to buy a new box. As for what you refer to as "pressure" on the top line, you've missed the point of the company's restructuring. Go back and look at the posts from a year ago. Specifically look for the posts from someone named Renkluaf. The company de-emphasized, wound-down, cut-back, killed or what-ever-you-want-to-call-it their multi-media upgrade kit business. It was destroying them financially because of the CD-ROM business. When you take that business from 50% of revs to 30% of revs plus have to clean up the channel and your own inventory at the same time, what you get is a weakening top line. To have kept it where it has been throughout FY97 PLUS orchestrate a major audio product transition was a monumental task. AND ONE LARGELY UNRECOGNIZED!!!!! As for Pioneer status, it doesn't "run out" in the sense that you think and will continue indefinetly as long as they keep developing new products in Sing.

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