Creative Trims Loss, Sales Down 25%

Creative's financial situation is improving as it reported a narrower net loss Thursday for the fiscal fourth quarter, however sales plummeted nearly a quarter over last year as the company continues to struggle against Apple in the digital music market.

Additionally, Creative reported a much wider loss for the year, but said it was positive about future quarters.

"Although we posted a loss for the period and for the year, we made progress towards our goals," Creative Labs president Craig McHugh said. "Based on our progress in the fourth quarter, our focus on reducing our operating expenses, and the market potential for our products, we are targeting our return to profitability by the end of this calendar year and continued profitability going forward."

For the quarter, Creative reported a net loss of $12.7 million, including a $10 million tax credit, on sales of $230.9 million. This compares to a loss of $31.9 million, which includes a $9.3 investment gain, on sales of $305.4 million a year ago.

For the year, the company lost $118.2 million, which includes investment gains of $18.9 million, and one time charges of $41.6, which primary included restructuring charges for its 3DLabs division, on sales of $1.1 billion. These numbers compare to a net gain of $600,000 last year on sales of $1.2 billion.

In order to return to profitability, Creative plans to slash operating expenses, begin moving out of less profitable market segments, and trim the number of products in the company's portfolio. In a conference call, McHugh said the company was seeing strong demand for their products due to their low prices.

Also, Creative plans to market more aggressively its higher-margin products, which include speakers and headphones. This may mean the company would trim its digital music player line, which currently consists of some 30 different players and is generally seen as a lower margin product, although McHugh did not offer specifics.

Creative's woes come in stark contrast to Apple's successes financially. The Cupertino, Calif. company posted a $427 million profit on stronger than expected sales of iPods. While many analysts expected Apple to sell 7.5 million units for the quarter, the company reported sales of 8.11 million.

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