11 Dec 1997
Creative Technology makes
US$77m acquisition . . .
But company says Asian currency turmoil is likely to hit its sales
growth
By Jennifer Lien
[SINGAPORE]
Creative Technology yesterday announced a US$77 million
(S$125 million) purchase -- its biggest ever -- of US-based
sound card maker Ensoniq Corp, but disappointed shareholders
by disclosing the Asian currency turmoil is likely to hit its sales growth.
"If we can achieve the low part of our target this year, we'd be doing a spectacular job already," chairman Sim Wong Hoo told a press briefing yesterday, which gave some insight into why the company's share price was coming down to earth after shooting into the stratosphere.
Creative has said it expected 10 to 15 per cent sales growth this year
from last year's US$1.23 billion.
But Mr Sim said Creative is still on track to achieve its projected gross margin in the low-30s and meet earnings forecasts for this quarter and the year ending June 1998.
He added that Creative would now focus on profitability, not revenue
growth, although the group had said in October it would focus again on
revenues after returning to the black. "We don't want to push a lot of
products out there and get exposed."
On the acquisition of privately-held Ensoniq Corp, Mr Sim said
Creative chose the company because of its complementary technology
in PCI audio and in certain software, and its client base. The company
also has low-cost manufacturing facilities in the US.
Ensoniq makes audio chips and cards based on the latest PCI audio
standard, supplying them to top personal computer makers such as
Hewlett-Packard and Gateway 2000.
Creative, which has amassed a cash horde of US$463 million, has been
looking for acquisition targets. It also recently bought the assets of
NetMedia, a unit of US-based multimedia company Opti, for US$14
million.
He said some top-tier PC makers, also known as original equipment
manufacturers (OEMs), may not buy Creative products as its brand
name commanded a price premium.
Ensoniq, on the other hand, has a well-accepted brand name, good
mid-range technology, and adequate Sound Blaster compatibility to
appeal to this top-tier market. So the acquisition "allows us to grow
some part of the original equipment manufacturing (OEM) market".
He acknowledged that the acquisition was a way to "protect and
defend" its turf, as Microsoft's Windows 95 software had allowed
users to bypass the Sound Blaster standard and use other cards
instead.
Creative foresees a one-time write-off of in-process research and
development. The purchase will immediately add Ensoniq's US$50-100
million sales to Creative's results this year, and marginally dilute this year's earnings.
At its Q1 results briefing in October, Mr Sim had said depreciating
Thai and Malaysian currencies had hurt buying power and thus sales,
cutting Asia's revenue contribution from 30 per cent to 24 per cent.
This was offset by lower costs in Singapore and Malaysia. Asia has
been Creative's fastest-growing region.
But the crisis has now spread to Korea, Japan and Brazil, Mr Sim said.
Korea and Japan are among Creative's three top Asian markets, and
Brazil contributes a "quite significant" portion of its American business, which contributed 57 per cent of sales last quarter. As for Christmas sales in its key US market, Mr Sim said it was too early to tell but conceded: "We don't see a big disaster there, it's normal but there's no big excitement either." But he said its latest Graphics Blaster card was in short supply.
Mr Sim also dismissed reports Microsoft's DirectX software would
undermine sales of Creative's sound cards, saying new software is still best optimised to run on Creative's cards and that DirectX is still "not good" at emulating the Sound Blaster standard. |
