I just can't get it....it's always the same thing
Creative Faces Profit Decline as Price Cuts Hurt Margins
Creative Faces Profit Decline as Price Cuts Hurt Margins
Singapore, Jan. 29 (Bloomberg) -- Creative Technology Ltd., the world's
largest maker of sound cards for personal computers, is expected to
report a 29 percent drop in its fiscal second quarter profit as price cuts
and disappointing new product sales hurt earnings.
Profit for the three months ended Dec. 31 could fall to $53.1 million from
$75 million a year earlier, based on a Bloomberg News poll of four
analysts. Estimates ranged from $47 million to $58.2 million. Results are
expected to be released at 5 p.m. New York time. ''There's has been
severe price erosion especially in the graphics segment,'' said Shailesh
Jaitly, an analyst at RHB Cathay Research Pte. ''Graphic cards had been
very competitive in this quarter.''
Analysts estimate that graphics products account for almost a fifth of
Creative's sales. The competition comes as rivals such as Diamond
Multimedia Systems Inc. cut prices to sell excess products, forcing
Creative to match those prices.
In its second quarter, Creative also unveiled its latest sound card model,
called ''Soundblaster Live,'' which is expected to contribute up to 20
percent of its fiscal 1999 sales. Optimism about strong Christmas sales
quickly faded though amid Creative's hurried introduction of a cheaper
version of the new product at $99 -- half the price of its original. ''They
were forced to come out with value versions within two weeks, so on the
sound card business, you'll see some provisions,'' Jaitly said.
Sound cards account for about half of Creative's profit, analysts estimate.
Creative's soundcards are known around the world. But the company's
global reach also means the company is exposed to global risks, such as
the currency turmoil that enveloped Brazil this month. ''Creative has 7 to 8
percent exposure in Brazil, so there are some worries that orders have
slowed down,'' said Pranab Kumar Sarmah, an analyst at Daiwa Institute of
Research (Singapore) Pte. ''It just means that whatever growth we're
expecting for this year might slow down.''
Stock Performance
Creative's stock price has fared worse than the key indexes in both the
countries it trades -- the U.S. and Singapore.
In the U.S., Creative shares fell 26 percent in the past year, while the
technology-heavy Nasdaq Composite Index soared 53 percent. In
Singapore, its shares fell 19 percent while the Bloomberg Singapore
Electronics Index of 32 stocks gained 6.3 percent.
Investors say they're also concerned that its business could become
obsolete with technological advances. ''The danger about that is as
computer chips become more sophisticated, it'll replace sound cards,''
said Dennis See, a fund manager at Pointworth Management Pte, which
manages $70 million. ''But it's still got a big name, it's cash rich and it's
not taking big risks -- you're not going to a see a big collapse in this
stock.''
Investors were also counting on the company's plan to buy back its own
shares. But with the stock rising 70 percent since it disclosed plans for a
share buy back on Oct. 9, analysts say that plan may take a back seat for
now as it's become too expensive.
The stock rose 30 cents to S$24.90 in recent Singapore trading. It rose
1.7 percent to $15 in U.S. trading Thursday |
