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Creative plunges into the red

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Creative lost $31.9m (38 cents a share) on sales of $305.4m during its fourth quarter, the MP3 player maker said yesterday.

That compares with net incomes of $15.9m (18 cents a share) for the previous quarter and $6.6m (eight cents a share) for Q4 FY2004.

Sales were up 51 per cent year on year, from $201.8m, but down 8.5 per cent sequentially, from $333.8m.

Creative had forecast sales of $330-360m, but last month cut its prediction to $300m. Wall Street analysts had been expecting the company to announce a loss, but according to Reuters, they were looking for a figure around $7.2m.

But for an investment gain of $9.3m, Creative's loss would have been $41.2m.

Sales for the 2005 fiscal year were up 50 per cent to $1.22bn, up from FY2004's $814.9m. Full-year net income came to just $600,000 (one cent a share), but without one-off gains and charges, the company lost $8.6m (ten cents a share).

Creative wrote off $20m worth of unsold product during the quarter, while gross margins fell year on year from 32.9 per cent to 10.1 per cent, knocked down by the write-off and falling MP3 player prices throughout the market.

Some 68 per cent of Creative's revenues came from sales of such devices, and while Q4 device shipments jumped 260 per cent year on year, the increase was below what the company admitted were "aggressive expectations".

Apple, Creative's major competitor - and on which it famously declared 'war' in November 2004 - shipped 6.2m iPods, well beyond market expectations.

The president of Creative's US operation said the company expects to get "closer" to break-even during the current quarter and "return to profitability by the end of the calendar year". The company has its new Sound Blaster X-Fi cards, the Zen Micro Photo music player and the Zen Vision personal video player all lined up for a September release, so moves toward the Christmas sales season with a strong product line-up.

However, Apple is expected to unveil its fifth-generation iPod in the Autumn, more capacious Shuffles, and possibly its first portable video player, so the competition isn't going to ease off any. ®

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