MP3 player maker Creative swings to Q3 loss

Digital music player maker Creative turned to a loss in its third quarter, hurt by restructuring charges and a fall in flash memory prices.

Digital music player maker Creative Technology posted a loss in its third quarter due to restructuring charges and a sharp drop in prices for flash memory chips, which are used to store songs in its devices.

The decline in flash memory prices hurt Creative's sales and prompted it to downgrade the value of its inventory of the chips, Creative said Wednesday. Flash memory chips used in music players, dubbed NAND flash, fell in price earlier this year as producers increased production of the chips, flooding the market with them. But instead of banking on lower component costs, most MP3 player makers were caught with huge inventories of the chips, which decline in value as the price of the chips fall on world markets.

Creative's loss in the three months ending March 31 was US$114.3 million, compared to a net profit of US$14.8 million during the same period a year ago. Its sales slumped to US$225.7 million from US$333.8 million during the same three months last year.

The company blamed the poor showing partly on a US$41.6 million one time charge related to goodwill and restructuring charges, in addition to the drop in NAND flash memory prices.

"There was a drop in flash memory prices in the quarter, with a precipitous drop in prices at the end of the quarter," said Craig McHugh, president of U.S. subsidiary Creative Labs Inc., in a statement. "This had a significant adverse effect on our sales in the quarter, and resulted in lower revenues, lower gross margins and inventory write-downs in the period."

The company is examining its product categories to determine how it can return to profitability in the second half of this year, the statement says.

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Dan Nystedt

IDG News Service
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