Reuters, Sunday, January 31, 1999 at 20:38
SINGAPORE, Jan 30 (Reuters) - Multimedia firm Creative
Technology (NASDAQ:CREAF) second quarter earnings were positive but
may signal tougher times ahead, analysts said on Saturday.
"It's kind of disappointing as I was expecting a stronger
showing for the audio business," Terence Khoo, analyst with
Vickers Ballas, told Reuters.
He said the graphics card business, taking up a larger
share of Creative's business, was higher risk and margins had
been coming down.
Creative Technology, which has a listing in the United
States, develops and manufactures multimedia products for
personal computers and entertainment.
Late on Friday, Creative reported sales for the second
quarter ended December 31, 1998 grew US$428.7 million versus
$395 million for the same quarter previously.
Its net profit rose to $60.58 million from $14.67 million
for the same period a year ago. But net income reported for the
same period last year reflected a one-time write-off of $60.3
million.
Analysts surveyed by Reuters expected net profits of about
$65 to $67 million for the second quarter.
"I was a bit disappointed. The thing that was more worrying
to me was that the guidance was very cautious," said Lucas
Ward, technology analyst with Goldman Sachs.
Analysts said that Creative executives expected revenues to
come in flat to about 10 percent lower for the third quarter.
Creative cited its changed relationship with main supplier
3Dfx, which it would now compete with.
This meant Creative would have to cut prices on items which
used 3Dfx products, such as Voodoo graphics cards, to move
them, analysts said.
"You get price cuts in graphics, Latin America seems to be
a very big problem, and the shortage in DVD ROM drives they
expect to last till late into the March quarter," Ward said.
The shortage of DVD ROM drives would impact Creative's
sales of multimedia kits consisting of CD-ROM and DVD-ROM
drives bundled with cards and software.
"It basically means there is strong demand for DVD drives
right now and Creative is not able to meet that demand because
they can't get enough drives from their Japanese suppliers,"
Ward said.
Analysts quoted Creative executives as saying in a
conference call that sales had been hit by Latin American
troubles.
Some analysts also felt the revenue mix for the second
quarter revealed weaknesses for the company going forward.
Vickers' Khoo said audio comprised some 39.9 percent of
revenue, less than what the market had expected, while graphics
made up 25.1 percent of sales, a larger contribution than ever.
Audio accounted for about 49 percent of revenue a year ago,
while graphics and others came up to 13 percent.
"What it means is that graphic cards are playing a larger
role than ever now," Khoo said
"This mix of lower margin business with their historical
higher margin cards does not translate well to the bottomline."
Analysts said the Sound Blaster Live system would remain
the main driver of Creative's revenue, but with computers
getting cheaper, users may opt for a lower range multimedia
product.
Copyright 1999, Reuters News Service |
