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Creative Announces Q2 FY06 Financial Results with Revenues of $390.8 million

SINGAPORE - January 26, 2006 - Creative Technology Ltd. (NASDAQ: CREAF), a worldwide leader in digital entertainment products, today announced financial results for the second quarter of fiscal year 2006, ended December 31, 2005. All financial results are stated in U.S. dollars.

Sales for the second quarter were $390.8 million, up from sales of $375.1 million in the same quarter last year. Sales for the first six months of fiscal year 2006 were $671.0 million, compared to $585.2 million for the first six months of the previous fiscal year.

Net income for the second quarter was $8.2 million with EPS of $0.10, including an investment gain of $6.9 million. Excluding the investment gain, net income for the second quarter was $1.3 million with EPS of $0.02. This compares to net income of $11.8 million with EPS of $0.14 for the same quarter last year including an investment gain of $51.5 million and a non-cash impairment charge of $65.2 million for goodwill and intangible assets relating to the acquisition of 3Dlabs in 2002. Excluding the investment gain and non-cash impairment charge, net income for the same period last year was $25.5 million with EPS of $0.30.

Net income for the first six months of the 2006 fiscal year was $8.9 million, with EPS of $0.11, including investment gains of $16.9 million. Excluding the investment gain, net loss for the first six months of the 2006 fiscal year was $8.0 million, with loss per share of $0.10. This compares to net income of $16.6 million with EPS of $0.20 for the same period last year, including investment gains and the non-cash impairment charge. Excluding the investment gain and non-cash impairment charge, net income for the first six months of the previous fiscal year was $31.5 million with EPS of $0.37.

"During the quarter we achieved several key results. Of primary importance we achieved our goal of returning to profitability," said Craig McHugh, president of Creative Labs, Inc. "Our revenue in the quarter was the highest for any quarter in the past five years, with increased year-over-year sales in each of our key product categories - MP3 players, audio, web cams and PC and MP3 speakers. The ZEN Vision:M, our 30GB MP3, photo and video player was launched in December. We reduced our net inventory 18 percent from the previous quarter. In the next few quarters, we plan to further lower our inventory, reduce our overall level of operating expenses, and we will increase our focus on our higher-margin businesses."

"We're very excited about the introduction of our ZEN Vision:M, MP3, photo and video player. We launched the ZEN Vision:M in the U.S. at the Consumer Electronics Show in Las Vegas in January, where it won the 'Best of CES' award for the MP3 and portable video category and received the overall 'Best in Show' award," said Sim Wong Hoo, chairman and CEO of Creative. "We competed against thousands of companies, including all the big names in consumer electronics, to be recognized for the best product at the largest annual trade show in the United States. Being chosen as the best new product at the show validates our strategy to provide the coolest-looking, most feature-rich portable media players in the world."

Share Buyback Program

During the quarter, Creative did not repurchase any shares under its share buyback program.

Recent Announcements

Creative introduced the ZEN Vision:M 30GB MP3, photo and video player. Featuring a dazzling, 2.5-inch, high-resolution 262,144 color LCD display, the ZEN Vision:M holds 15,000 songs, thousands of photos and 120 hours of video, and is available in high-gloss black, white, blue, green or pink.

Creative announced that the ZEN Vision:M won the overall "Best in Show" award at the Consumer Electronics Show and the "Best of CES" award in the MP3 and portable video category.

Creative announced ZENCast™, the new application for accessing, creating and transferring thousands of audio and video blogs for Creative ZEN MP3 players.

Creative announced the Live!® Wireless, an easy-to-use web camera that utilizes a wireless network to enable remote viewing of a home or office from any Internet-enabled PC, PDA or mobile phone.

Creative announced the latest addition to its award-winning GigaWorks™ speaker family- the THX-certified GigaWorks™ ProGamer G550W. Featuring wireless audio transmission to its two rear speakers, the GigaWorks ProGamer G550W delivers powerful surround sound audio for music, movies and games.

Creative announced the Fatal1ty 2020 Mouse, the only PC gaming mouse co-developed with 2005 Cyberathlete Professional League Worldwide Champion gamer, Johnathan "Fatal1ty" Wendel. A winning combination both in design and technology, the Fatal1ty 2020 Mouse features a 2400cpi HD-Laser engine that offers up to 6X the resolution of standard optical mice.

Creative introduced the Skype Internet PhonePLUS, a phone for the home or office that enables users to connect directly to a router to make free Skype calls. Functioning like a traditional phone, the Skype Internet PhonePLUS provides a new way to experience Skype without requiring a PC.


Awards & Accolades

The Creative ZEN Vision:M received:
- The "Best in Show" award at the Consumer Electronics Show
- The "Best of CES" award for the "MP3 and Portable Video" category at the Consumer Electronics Show

The Creative ZEN Vision received:
- A 5 out of 5 rating from About.com
- The "Innovations Award" from PC World magazine

The Creative ZEN MicroPhoto won the "Editor's Choice" award from CNET.com

The Creative Sound Blaster X-Fi received:
- The "Best of What's New" award from Popular Science magazine
- The "Gear of the Year" award from Maximum PC magazine
- The "Editor's Choice" award from TechReport.com
- The "Editor's Choice" award from Globetechnology.com (Canada)

The Creative GigaWorks ProGamer G500 won the "Editor's Choice" award from Official Xbox Magazine


Listen to Creative's Q2 FY06 Analyst Conference Call:

Link to the Q2 earnings conference call live on January 26th at 8:00AM Singapore time (January 25th at 7:00PM Eastern time) via Creative's Investor Relations Web site: http://www.creative.com/corporate/investor/ or by calling 1-800-374-2493.
A replay will be available from shortly after the end of the conference call until February 1st via the same link from the IR web site or by calling 1-800-642-1687 or 1-706-645-9291. The reservation number to listen to call is 4606136.