Thursday August 24, 6:44
PM
Investors cheer
iPod decision but Creative's woes far from
over
Investors have cheered Creative Technology's 100 million US dollar
settlement from rival Apple Computer but analysts warned the
Singapore company's troubles are from over.
The companies earlier settled a dispute over patented technology
used by the US company in its best selling iconic iPod music
players resulting in Creative's share price enjoying a bumper ride
on the stock market.
Creative's shares surged to as high as 13.20 Singapore dollars
(8.40 US), or 37.5 percent, in morning trade Thursday. The shares
soon came off their highs and closed at 11.40 dollars, still up 1.8
dollars, or 18.8 percent from the previous day.
However, analysts said the loss-making Singapore company faces an
uphill battle to get its business back on track after investing
heavily in the last two years to challenge Apple's dominance in the
MP3 music player market.
"Their cost structure is still too high, they are still losing
money," said Claudio Checchia, a regional research manager with
International Data Corp.
"They still have to go a long way to improving their own cost
structure and trying to get sales high," he told AFP.
Jonathan Ng, a technology analyst with CIMB brokerage, said the
settlement has cleared the uncertainty of a possible long legal
battle.
"However, the settlement does not change our negative view on its
core businesses. Demand for its audio products have been waning,
and competition for the MP3 player market has intensified.
"We still cannot find any new 'killer' products from Creative that
could help revive strong earnings recovery in the near term."
Ng however raised his fair value for Creative by 1.85 dollars to
10.50 dollars per share and upgraded the brokerage's rating on the
stock to a "trading buy" due to the windfall from the
settlement.
He also increased his year-to-June 2007 net profit estimate for
Creative to 99.40 million US dollars from a previous forecast for
loss of 600,000 US dollars.
Under the deal Apple will pay Creative 100 million dollars for a
license to use the technology and would be able to recover some of
the money if Creative licensed the patent to others, according to
the companies.
Creative would also begin marketing its own line of iPod
accessories as part of Apple's "Made for iPod" program.
Creative chairman and chief executive Sim Wong Hoo said in a
statement the settlement with Apple "opened up significant new
opportunities" for his company.
The firm's participation in the "made for iPod" program should
provide market opportunities for Creative's speaker systems,
headphones and the future family of X-Fi audio enhancement
products, Sim said.
"It is definitely going to bolster the fact that Creative does have
superior technology... It shows that it is a technology company,
just that Apple has more superior marketing," said DBS Vickers
analyst Don See said, noting that the Singapore firm was strong in
headphones and speaker systems design.
The deal ended a legal battle that began earlier this month after
Creative was awarded what it referred to as a "Zen patent" on
technology used to select and sort songs in its Zen MP3
player.
In May, Creative filed a lawsuit and a patent complaint in the
United States against Apple aimed at halting the import and sale of
the allegedly infringing Apple iPod and iPod Nano products in the
giant US market.
Creative has paid dearly in its unsuccessful bid to challenge Apple
in the MP3 player market as the Singapore outfit slipped into the
red for the year to June with a loss of 118.2 million US
dollars.
The company gained global fame for its SoundBlaster card that
allowed personal computers to be used as home entertainment units
but its follow-up products have struggled to match the success of
the sound cards.
