ML lowered estimates:
Fundamental Highlights:
*Q2, FY98 operating earnings were ABOVE ML and consensus estimates. Results included US$60.3m in-process R&D writeoff for the acquisition of Ensoniq, NetMedia and Cambridge Soundworks
*EPS for FY98 lowered from US$2.50 to US$1.86. FY99 is unchanged. Excluding exceptionals, our estimates are UNCHANGED
*We expect Q3, FY98 EPS to fall slightly and growth to resume in Q4, FY98 and Q1, FY99
Fundamental Highlights:
*Asia sales was down 27.5% and Europe up 19.4%, the strongest since Sep 95. The Americas grew 5.0% but we believe Latin America eroded what was close to double digit growth in North America.
*Looking ahead, Europe and North America should remain healthy. If Korea stabilises and Japan's fiscal stimulus efforts succeeds, Asian growth could resume later this year. Ramp-up in PC-DVD and speakers could also partially offset Asian effect later in the year.
Product Portfolio
Creative's product portfolio has never been stronger.
£ Dominance in retail audio remains unchallenged
£ Ensoniq opens the door to mid-end OEM
£ Netmedia opens the door to low-end OEM and notebook market
£ Audio technology roadmap for next 3 years highly convincing.
£ Graphics cards reach 12% market share in US retail, according to the company - from around 2% a year ago
£ Speakers reach 12% market share in US retail, according to the company - from almost nothing a year ago
£ PC-DVD kits reach 90% market share for DVD upgrade kits, according to the company
Balance Sheet
Debt did not increase significantly. Cash fell to US$375.8m from US$463m last quarter. However, if there had been no acquisitions, cash would have crossed US$0.5 billion.
Due to the macroeconomic uncertainties thrown up by Asia, the company plans to review all its current acquisition negotiations and conserve cash.
Inventories rose to US$143m from US$90.2m in the last quarter. However, this includes US$24m of inventory consolidated from the new acquisitions. The company was comfortable with the underlying net inventory of US$119m as it's inventory levels in the past few quarters had been lower than optimal. |
