Creative loses first battle in Apple 'war'

Now looks to rival to help boost Flash player sales

By Tony Smith, 20th January 2005

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MP3 player maker Creative Technology failed to outsell Apple's iPod during the holiday sales season, it emerged today when the company published its financial results for the period.

Apple last week said it had sold 4.5m iPods in the three months to 31 December 2004, more than double the 2m Creative today said it sold during the period, which equates to the second quarter of its FY2005.

Clearly, Creative is not winning the war it declared against its rival last November. Back then, Creative chairman and CEO Sim Wong Hoo bullishly said: "It's our target to beat iPod in this quarter."

"The MP3 war has started and I am the one who has declared war," he thundered at the time, adding that the company was on track to sell 3m MP3 players during the Christmas quarter. He also pledged to spend $100m to out-market Apple.

And, in a spirit of 'if you can't beat 'em, join 'em', Hoo is looking to his rival to help boost his own sales. "Apple's entry into the Flash [player] market will create more awareness in the Flash market segment, and we are well positioned to become a big beneficiary of this expanding market," he said today.

Still, the company's quarterly sales were up 50 per cent year on year to $375.1m. Net income for the period totalled $11.8m (14 cents a share), well down on the year-ago quarter's figure, $41.5 (50 cents a share).

The company made an investment gain of $51.5m but took a $65.2m hit arising from its 2002 acquisition of 3Dlabs. Without these and other factors, Creative's net income would have come to $25.5m (30 cents a share), compared to $28.3m (34 cents a share) this time last year.

Looking ahead, Creative said it expects Q3 FY2005's sales to be similarly 50 per cent higher than the year-ago quarter's total, taking them to around $300m. Gross margins are expected to be about 27 per cent, and operating expenses are expected to be approximately 22 per cent of sales. ®