CREATIVE GROWS NET INCOME 55% IN HOLIDAY QUARTER, POSTS EPS OF 35 CENTS
55% Net Income Growth Is Before Tax Benefit of Additional 15 Cents Per Share; Total Reported EPS Is 50 Cents
SINGAPORE - January 29, 2004 - Creative Technology Ltd. (Nasdaq: CREAF), the worldwide leader in digital entertainment products for PC users, today announced financial results for the second quarter of fiscal year 2004, ended December 31, 2003. All financial results are stated in U.S. dollars.
Sales for the second quarter were $250.4 million, up from sales of $230.9 million in the same quarter last year.
Creative grew net income 55% year-over-year, achieving net income of $29.2 million and EPS of $0.35, up from the previous year's Q2 net income of $18.9 million with EPS of $0.23. The net income of $29.2 million and EPS of $0.35 is before the benefit of a tax write-back. Including the tax write-back, net income for Q2 reported today is $41.5 million, with EPS of $0.50, a 120% year-over-year increase in net income.
The current quarter tax write-back includes a $12.3 million reversal of prior periods' income taxes. This is a result of a new Pioneer Status under the International Headquarters Award granted to Creative, under which, profits arising from qualifying activities will be exempted from income tax in Singapore. Accordingly, the Company will be recovering funds from the taxes previously paid on such profits.
"In the quarter, we saw tangible results of the remodeling of our businesses, as sales of our digital entertainment products outside the PC box grew to a record 66% of total revenues," said Craig McHugh, president of Creative Labs, Inc. "Our Personal Digital Entertainment (PDE) product category grew 77% year-over-year and has grown to become our highest-revenue product category. Within the PDE category, our digital audio players revenues grew even faster, at 112% year-over-year, as we achieved strong revenue growth in both our hard drive-based jukeboxes and our MuVo® flash-based players. We are particularly pleased to have achieved such tremendous growth in our personal digital entertainment category, while achieving a 35.5% gross margin, ahead of our expectations, and growing net income by 55% year over year."
"We have started 2004 with a wave of excitement about Creative," said Sim Wong Hoo, chairman and CEO of Creative Technology Ltd. "We generated a huge buzz at the Consumer Electronics Show (CES), starting with Microsoft's Chairman, Bill Gates, holding up a prototype of our ZEN Portable Media Center in his opening keynote speech, and continuing with the crowds that swarmed our exhibit to experience Creative's wide range of products. I believe we had the most exciting products and exhibit at the whole show, as we beat out the traditional CE companies to win a 'Best of CES' award for the ZEN Portable Media Center. The enthusiasm for our products continued beyond CES, with our Sound Blaster® Wireless Music featured in the Wall Street Journal and on CNBC Power Lunch, and the new MuVo TX and Creative Prodikeys® DM featured on CNN Headline News. These products can help us build on the momentum we have established in PDE, our highest growth and now largest revenue contributing product category."
For the third quarter of fiscal year 2004, Creative announced that it is targeting to grow revenues by about 10% year-over-year, to between $175 and $180 million. Gross margins are expected in the range of 34% to 35%, and operating expenses are expected to be approximately $54 million. With this, the Company is targeting to grow third quarter earnings per share by 50% year-over-year, to around $0.09. Based on the Company's current outlook, Creative announced that it is targeting continued revenue growth for the fourth quarter of above 10%.
Share Buyback Program
During the quarter, Creative did not repurchase any shares under its share buyback program.
- Creative delivered the compact size and ease of use of a flash-memory based digital audio player with the large capacity of a hard-drive based player with the new NOMAD® MuVo² 4GB portable audio player, with a footprint of only 2.6" by 2.6" but featuring an incredible 2100-song capacity;
- Creative introduced the future of digital entertainment with the announcement of the Creative NOMAD MuVo TX with USB 2.0, the Creative Prodikeys DM combination PC and music keyboard, and the new Creative DC-CAM digital camera line at the 2004 Consumer Electronics Show;
- Creative introduced the ZEN Portable Media Center at CES, which was featured in Bill Gates' keynote address and ushers in a new era in digital entertainment by providing a sleek, compact handheld device to carry video, music and digital images;
- Creative announced its second consecutive "Best of CES" award, with this year's victory for the ZEN Portable Media Center.
Awards & Accolades
- The Creative ZEN Portable Media Center won:
- The "Best of CES" award at the Consumer Electronics Show
- "Product of the Day" and "Top 10 Products of CES" recognition on CNET
- The Creative Prodikeys DM was recognized as one of the "Top 5 Products of CES" by CNN Headline News
- The Creative Sound Blaster Wireless Music was featured in Walt Mossberg's column in the Wall Street Journal. Mr. Mossberg also profiled the product on CNBC's Power Lunch. The Sound Blaster Wireless Music received "Honorable Mention" in the Ziff-Davis Media "Last Gadget Standing" contest at the Consumer Electronics Show and won the "Gear of the Year" award from TechEdge magazine
- The Creative Sound Blaster Audigy® 2 ZS won:
- The "Kick Ass Award" and "Gear of the Year" award from Maximum PC magazine
- The "Editor's Pick" Award from PC World magazine
- The "Gear of the Year" Award from TechEdge magazine
- The Creative Sound Blaster Audigy 2 won:
- A "Best Product of 2003" Award in PC Magazine
- A "Product of the Year" Award on gamersdepot.com
- The Creative Sound Blaster Audigy 2 NX won the "2004 Next Gear Innovations Award" from PC World magazine
- The Creative NOMAD MuVo NX won:
- A "Best Product of 2003" award from Handheld Computing magazine
- The "Editor's Choice" award from LAPTOP magazine
- A "Gear of the Year" award from TechEdge magazine
- The Creative WebCam Notebook was recognized as "Gadget of the Month" by PC Magazine
- Three different Creative speaker systems, the Creative I-Trigue® L3500, the Creative Inspire T7700 and the Creative TravelSound® MP3, won "Gear of the Year" awards from TechEdge magazine
Balance Sheet & Statement of Income
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Creative (Nasdaq: CREAF) is a worldwide leader in digital entertainment products for PC users. Famous for its Sound Blaster audio cards and for launching the multimedia revolution, Creative is now driving digital entertainment on the PC platform with products like its highly acclaimed NOMAD Jukebox. Creative's innovative hardware, proprietary technology, applications and services leverage the Internet, enabling consumers to experience high-quality digital entertainment -- anytime, anywhere.
This announcement refers to products and pricing sold in the United States of America. Pricing and product availability are subject to change without notice. Sound Blaster, I-Trigue, Creative TravelSound, Audigy, and MuVo are trademarks or registered trademarks of Creative Technology Ltd. in the United States and/or other countries. NOMAD is a registered trademark of Aonix and is used by Creative Technology Ltd. and/or its affiliates under license. All other brand and product names are trademarks of their respective holder and are hereby recognized as such.
Safe Harbor for Forward-Looking Statements:
This press release contains forward-looking statements. These forward-looking statements represent Creative's expectations or beliefs concerning future events and include statements, among others, regarding Creative's expected revenue, gross margin, operating expenses, and earnings per share for the quarter ending March 31, 2004 and revenue for the balance of the fiscal year. These forward-looking statements involve risks and uncertainties that could cause Creative's actual results to differ materially. Such risks and uncertainties include: Creative's ability to timely develop new products that gain market acceptance and to manage frequent product transitions; competitive pressures in the marketplace; Creative's ability to successfully integrate acquisitions; potential fluctuations in quarterly results due to the seasonality of Creative's business and the difficulty of projecting such fluctuations; possible disruption in commercial activities caused by factors outside of Creative's control, such as terrorism, armed conflict and labor disputes; a reduction in demand for computer systems, peripherals and related consumer products as a result of poor economic conditions, social and political turmoil and major health concerns, such as the spread of Severe Acute Respiratory Syndrome, or SARS; the proliferation of sound functionality in new products from competitors at the application software, chip and operating system levels; the failure of cost-cutting measures to achieve anticipated cost reduction benefits; the deterioration of global equity markets; exposure to excess and obsolete inventory; Creative's reliance on sole sources for many of its chips and other key components; component shortages which may impact Creative's ability to meet customer demand; Creative's ability to protect its proprietary rights; a reduction or cancellation of sales orders for Creative products; accelerated declines in the average selling prices of Creative's products; the vulnerability of certain markets to current and future currency fluctuations; the effects of restricted fuel availability and rising costs of fuel; fluctuations in the value and liquidity of Creative's investee companies; and the potential decrease in the trading volume and value of Creative's Ordinary Shares as a result of Creative's intended delisting from NASDAQ and elimination of its U.S. public reporting obligations. For further information regarding the risks and uncertainties associated with Creative's business, please refer to its filings with the SEC, including its Form 20-F for fiscal 2003 filed with the SEC. Creative undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in Creative's expectations.