Bloomberg News October 28, 1998, 2:28 a.m. PT
Creative Soars on Outlook After 1st-Qtr Profit Drop (Update2)
(Updates stock price, adds comment.)
Singapore, Oct. 28 (Bloomberg) -- Creative Technology Ltd.'s
shares soared 11 percent as investors ignored the 58 percent
plunge in the company's fiscal first-quarter profit and focused
instead on the traditionally strong Christmas sales for personal
computers.
Creative Technology's Singapore shares closed S$2.00 higher
at S$20.80, its highest in about three months. Earlier, it rose
as much as S$3.30, or 18 percent, to S$22.10.
The newest product from the world's biggest maker of devices
to enhances audio on PCs is likely help it offset the falling
prices and rising inventory that hurt its business in the quarter
ended September, analysts said.
''The outlook for the Christmas quarter seems very
positive,'' said David Leow, associate director at HSBC
Securities Singapore Pte., who rate the stock a ''hold.''
''Creative's a top notch brand name and the take up of the
product is expected to be very good.''
Creative Technology delayed the shipment of its new sound
cards called ''SoundBlaster Live,'' which analysts blamed for the
lower first-quarter profits. A year earlier, a new sound card
product had been in the market for about seven months when it
announced fiscal first-quarter results.
''It's a timing issue,'' said Russell Tan, an analyst at DBS
Investment Research Pte. ''That first quarter last year had a
full quarter of stock to sell.''
Numbers
Creative Technology said last night its profit for the
quarter ended Sept. 30 fell to $21.5 million, or 23 cents a
share, from profit before a gain of $51.6 million, or 55 cents, a
year ago. Earnings met the average estimate of seven analysts
polled by First Call Corp.
Chief Executive and Chairman Sim Wong Hoo was quick to point
out that he met Wall Street's expectations. That's in spite of
''difficult economic conditions,'' he said in a statement.
DBS Investment's Tan also said that given the tough economic
conditions, ''it's a strong quarter.'' The profit was below his
estimate of earnings of 29 cents a share.
Long-term Concerns
Still, analysts are concerned about that its product, which
is priced higher than that of its rivals in the retail market,
would face more pressure as global economy slows.
''The problem is it's a premium product and it does charge a
premium for it,'' HSBC's Leow said. ''With a global slowdown, I
would be concerned about the long-term outlook.
For example, Diamond Multimedia Systems Inc.'s new sound
card retails for US$90, while Creative Technology's Soundblaster
Live sells for US$99.
Creative Technology had to slash prices on its sound and
graphics cards to try to reduce inventory levels and deal with
increased competition, which led to a profit warning earlier this
year.
''U.S. Christmas sales will help them, but it won't be
enough,'' said Pranab Kumar Sarmah, an analyst at Daiwa Institute
of Research (Singapore) Pte., who has a ''hold'' on the stock.
''The market is very competitive for sound cards and it's much
more severe on the graphics side.''
Creative Technology's U.S. shares rose 3/4 to 12 1/8
Tuesday. It disclosed results after the close of U.S. trading.
--Linus Chua in Singapore with reporting by Jeff Bliss in New
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