Creative Technology Ltd

What they do

Creative Technology Ltd. designs and sells computer peripheral equipment and consumer audio products, incorporated in Singapore with principal executive offices at 31 International Business Park. The company files with the U.S. SEC as a foreign private issuer on Form 20-F and its ordinary shares are registered on the Singapore Exchange Securities Trading Limited. Products are marketed under the Creative brand, including the Creative logo and product names that are its trademarks or registered trademarks.

Revenue drivers

• Net sales of Creative products — The company generated $736.8 million in net sales for fiscal 2008, down from $914.9 million in fiscal 2007 and $1,127.5 million in fiscal 2006.
• Gross profit on product sales — Gross profit was $163.9 million in fiscal 2008 versus $177.7 million in fiscal 2007 and $164.3 million in fiscal 2006, reflecting a gross margin of about 22.2% in fiscal 2008.
• Investments and other income — Non-operating items contributed positively in fiscal 2008, including $18.8 million net gain from investments, $10.7 million interest income and $12.8 million in other income, partly offset by $5.6 million interest expense.

Recent performance

For the fiscal year ended June 30, 2008, Creative reported net sales of $736.8 million, a decline from $914.9 million in fiscal 2007. Cost of goods sold was $572.9 million, producing gross profit of $163.9 million. Operating expenses included $141.1 million in selling, general and administrative costs, $63.9 million in research and development, $9.7 million in other charges, and a $3.8 million charge for the Chairman's gift of shares to employees. The company reported an operating loss of $54.6 million and a net loss before income taxes and minority interest of $18.0 million, with income tax expense of $1.7 million.

Strategy

The filing excerpt does not include a dedicated strategy discussion beyond the safe harbor risk factors and selected financial data. Management's forward-looking statements note risks related to timely development of new products, product transitions, competitive pressures, and component sourcing. The company incurred $63.9 million in research and development expense in fiscal 2008, roughly flat with $63.6 million in fiscal 2007. No specific strategic initiatives, acquisitions, or capital plans are described in the provided source material.

Risks

• Product transition and development risk — Creative's ability to timely develop new products that gain market acceptance and to manage frequent product transitions is cited as a risk that could cause actual results to differ materially.
• Competitive pressure and price declines — The filing cites competitive pressures in the marketplace, a reduction or cancellation of sales orders, and accelerated declines in average selling prices of Creative products or component prices.
• Supply chain concentration — Creative relies on sole sources for many of its chips and other key components, and component shortages may impact its ability to meet customer demand.
• Market and currency exposure — Risks include vulnerability of certain markets to current and future currency fluctuations, deterioration of global equity markets, and fluctuations in the value and liquidity of Creative's investee companies.

Outlook

The provided excerpt does not contain a management outlook section with specific guidance for future periods. The safe harbor statement lists risks and uncertainties that could cause actual results to differ materially from forward-looking statements. Creative undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in its expectations.