Creative Tech Rebounded Friday-- WSJ june 1
Shares of Creative Technology rebounded Friday
following a sell-off earlier this week sparked by
Microsoft's entry into the market for personal-computer
speakers.
The Singapore-based multimedia company's shares rose
1 7/16, or 7.8%, to close at 19 3/16 in heavy trading on
the Nasdaq Stock Market. The surge came after Creative
investors got jittery earlier this week following the
Microsoft announcement ahead of a multimedia trade
show in Atlanta, driving the company's stock down 7%
from Monday's closing price to 18 3/8 at Thursday's
close.
Meanwhile, the Nasdaq Composite
Index fell 15.75, or 0.9%, to
1778.87 and Morgan Stanley's
high-tech 35 index dropped 11.89,
or 2.2%, to 540.98.
On Tuesday, Microsoft unveiled
the Microsoft Digital Sound System 80, its first
PC-speaker package, designed with the help of Philips
Electronics. The Redmond, Wash., software giant, which
sells a smattering of hardware peripherals such as PC
mice and joysticks, said the sound package will be
available in the fall. Microsoft's entry into new markets
often cause panic among established businesses and their
investors in those sectors, but, in this case, analysts said
the reaction to the Microsoft announcement was
overdone.
"It was sold off impulsively for no good reason," said
Lucas Ward, an analyst at Goldman Sachs. "This kind of
scare hits Creative every few months. People think they
are going out of business."
Currently, speaker systems amount to less than 10% of
Creative's revenue, but they are an increasingly
important growth area for the company, Mr. Ward said.
The company -- best known in the U.S. by its Milpitas,
Calif.-based Creative Labs subsidiary -- is a
powerhouse in the market for other add-ons that soup-up
the multimedia capabilities of PCs. According to Mr.
Ward, the company has about 70% of the market for
sound-card upgrade kits for PCs with its Sound Blaster
products and 15% of the market for graphics-card
upgrade kits. He added that the Microsoft speaker
package will be pricey relative to Creative's products
and that its audio quality won't be as good.
Still, in spite of its strong
position in multimedia,
Creative's stock has been
turbulent. Since March, its
shares have tumbled to the
high-teens in May from the
mid-20s. Analysts cited
weakness in Asian economies a key concern among
investors, and one reason for its lackluster growth this
year. For the third fiscal quarter of 1998 ended March
31, Creative reported earnings of $45.2 million, or 48
cents a fully diluted share, compared with $44.2 million,
or 48 cents a fully diluted share, in the year earlier
period. Revenues were $298.4 million, up from $282.8
million in the third quarter of 1997.
But some analysts have also become bullish on
Creative's growth prospects in the coming year. Merrill
Lynch and Goldman Sachs both recently upgraded their
investment ratings on the company to "buy," pointing to
Creative's strong brand and new products including an
upcoming sound card called Sound Blaster Live! that
analysts expect to sell well during the holiday season.
Merrill analyst Bernard Tan, for one, recently upped his
fiscal year 1999 earnings estimate to $2.73 a share from
$2.59. Still, Goldman's Mr. Ward said that its upcoming
quarter would be "kind of a dog" as Creative clears out
older products from the inventory channels to make room
for its newer products.
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