biz.yahoo.com
Friday June 12, 3:09 am Eastern Time
Analysts cut Creative earnings after 4Q warning
By Josephine Ng
SINGAPORE, June 12 (Reuters) - Analysts said on Friday they were cutting multimedia company
Creative Technology (CREA.SI) (CREAF - news) fourth quarter earnings forecasts after it sales
and gross margins for the period would fall short of expectations.
Earnings projections for the next fiscal year ending June 1999 were also lowered, they said.
''We are downgrading fiscal 1997/98 by 8.7 percent, 1998/99 by 10 percent,'' said Winston Lim,
analyst at Credit Suisse First Boston (CSFB).
This brings his full year net profit forecast for the year ending June 1998 to US$188.13 million,
excluding special charges, and net income of $259.65 million for 1998/99.
Russell Tan, analyst at DBS Securities said he slashed Creative's fourth quarter earnings to $22.9
million from $42.8 million, bringing his full year forecast, including special charges, to $152.9 million
from a previous $172.7 million.
For 1998/99, Tan said he trimmed net income to $245.5 million from $259.4 million.
On Thursday, Creative said revenues for the current quarter were likely to be about 10 percent
lower than the same period a year ago against expectations of flat sales year on year.
Gross margins for the current quarter were seen in the mid-20 percent range, down from about 30
percent.
Creative cited the recent price collapse in the low-end and mid-range 2D/3D graphics market as the
main reason.
A decision to delay shipment of its new SoundBlaster Live product, price cuts in older audio
products and a downturn in Asian markets would also dampen its fourth quarter results, it said.
Chairman Sim Wong Hoo said he regarded the setbacks in the current quarter, apart from Asia, as
transitory and was not changing the guidance given to analysts for fiscal 1998/99.
Creative had told analysts earlier that revenues were likely to rise 20 to 25 percent for the 1998/99
financial year and gross margins in the low end of a 30 percent range.
''The market is changing quite rapidly and it is possible their forecast might be adjusted lower later
on,'' said Siew Teng Kean, senior analyst at Santander Investment Securities.
He had some concerns that consumers could hold back purchases of Creative's main AWE64 sound
cards as they wait for SoundBlaster Live.
Siew expected some contribution from SoundBlaster Live in the next fiscal year, which could arrest
the fall in margins. But he added: ''It remains to be seen how SoundBlaster Live would perform.''
Volume shipments of SoundBlaster Live are now expected in July.
Tan of DBS Securities said he did not expect Creative to make any changes for 1998/99.
''With lower sales in 1997/98, it would not be hard to see a 25 percent increase in sales next year
and a 32 percent type of gross margins is normal for them,'' Tan said.
Despite its share price plunging more than 19 percent on Friday to as low as Singapore $21.60
($12.50), some analysts remained optimistic on a 12-month time frame.
CSFB's Lim said Creative was oversold and maintained his ''strong buy'' call.
''We have a price target of Singapore $40 or about US$25 in 12 months,'' he said, although he had
revised 1998/99 forecasts to a more conservative level.
Tan from DBS Securities said he had a short-term trading sell on the stock but recommended
accumulation on a 12-month basis.
''The share price will recover when it gets the go-ahead to buy back shares, which is expected
sometime early next year,'' he said. |
