Creative CEO Sim Wong Hoo Message For Annual Report 2007 ~ Creative Labs Zen MP3 Players Sound Blaster Card
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Saturday, October 13, 2007

Creative CEO Sim Wong Hoo Message For Annual Report 2007



Creative CEO Sim Wong Hoo concludes on Fiscal 2007. We summarised into these key points:
1. Targets to return back to profitability by middle fiscal 2008. That is by the end of 2008 which is after Christmas. Creative's seasonally strong quarter.
2. Continue to explore the opportunities of the U.S. ZEN patent for the user interface for portable media players including licensing programs, partnerships and potential legal remedies. We thought they are contented after getting the US$100m from Apple. So its glad to hear that.
3. Focus on Creative core business which is audio and growing the X-Fi audio beyond sound card and PC space into consumer electronic and cell phone market. Cell phone? We have not seen anything that is related to cell phone yet! So excited now!
4. Focus on speaker and headphone, which is high growth and high margin products. That includes making iPod accessory such as docking speaker system.
5. Creative is no. 2 worldwide unit market share position in the MP3 market! They are focusing on a few strategic high-volume and profitable MP3 products, mainly the Zen Stone/Plus and ZEN which is the successor for its award winning Zen Vision M.

Full Message:
Fiscal 2007 was a very difficult and challenging year for Creative, yet we had a major success with a $100 million license from Apple for its use of our ZEN@ Patent. Our financial performance was negatively affected by certain market conditions during the year. For the MP3 market in particular, we experienced intense competition which exerted severe pressure on our prices, reducing revenues and gross margins.

Our primary objective during the year was to position the Company to return to profitability by the middle of our 2008 fiscal year by focusing on several key strategic areas, to improve margins and reduce the overall level of operating expenses. These efforts covered our product areas, where we focused on growing the higher-margin products, and operational improvements, including in the areas of supply chain, procurement and inventory management. The result of these efforts is reflected in the financial results for the year - improvements in gross margins and reduction in operating expenses, albeit with a reduction in revenue.

Sales for fiscal year 2007 were $0.9 billion compared to $1.1 billion for the fiscal year 2006. Gross profit as a percentage of sales was 19% in fiscal 2007, compared to 15% in fiscal 2006. Net income for fiscal 2007 was $28 million, compared to a net loss of $118 million in fiscal 2006. Net income for fiscal 2007 included a $100 million paid-up license from Apple for its use of the ZEN Patent in its products, while net loss for fiscal 2006 included net investment gains of $19 million and one-time charges of $42 million primarily related to goodwill and restructuring charges for our 3Dlabs subsidiary.

During the year we achieved a major success with the ZEN Patent with the $100 million payment from Apple as part of our broad settlement, which includes a license for Apple to use the ZEN Patent in their products. In addition, we have also joined Apple's "Made for iPod" program, under which we are able to make and sell accessory products such as speaker systems for Apple's iPod players.

We have continued to explore the opportunities that our U.S. patent for the user interface for portable media players (which we refer to as the "ZEN Patent") affords us, including licensing programs, partnerships and potential legal remedies. The ZEN Patent was awarded to Creative in the previous fiscal year for our invention of the user interface for portable media players, including many of the Creative ZEN and earlier NOMAD@ Jukebox MP3 players, and found in some competing players, such as the Apple@ iPod@ products, and certain cell phones with music functions. The ZEN Patent covers the user interface that enables users of portable media players to efficiently and intuitively navigate among and select tracks on players which store large numbers of songs.

On the product and technology front, we have focused on growing our audio business by expanding the market for X-Fi Xtreme Fidelity@ audio beyond sound cards and the PC; growing our speaker business in the high-growth and higher-margin segments of the market, including docking and portable speaker systems for the M P3 digital audio market, headphones and lifestyle speakers for the home; and streamlining our MP3 player business with a focus on a few strategic high-volume and profitable products instead of the large number of product offerings we had. Our participation in the "Made for iPod" program has also provided significant new market opportunities for our high-growth and high-margin businesses, such as docking and portable speaker systems, earphones and headphones, and our newly introduced X-Fi-enabled audio enhancement products.

In the audio business, as I have mentioned last year, following the introduction of what I believe will be the future direction of audio - the new Xtreme Fidelity audio standard, and the launch of the Sound Blaster@ X-FiTM sound cards in the previous year, we saw tremendous potential growth opportunities for expanding X-Fi beyond the PC space into the consumer electronics and cell phone markets, and beyond the X-Fi sound cards into speakers and headphones, portable music and video players, digital entertainment products for the living room, and other X-Fi-enabled audio enhancement products. X-Fi can provide these products with ground­breaking audio technologies to dramatically improve the audio experience with music, games, movies and audio creation.

During the year, we introduced the first of such X-Fi audio enhancement products and followed on with a whole range of these products covering X-Fi modules, X-Fi docking devices, X-Fi docking speakers and X-Fi headphones. Products introduced to date include the Xmod, Xdock, X-Fi Wireless Receiver, Xmod Wireless, X-Fi Sound System Z600, X-Fi Sound System i600 for iPod and Aurvana X-Fi Headphones.

The Xdock is an X-Fi Dock for iPods that allows you to play back music wirelessly in any room of the home. When docked with an iPod that connects to the home entertainment system or speaker system, it up-converts the music from the player in real-time to a quality beyond CD quality - to 24-bit Xtreme Fidelity, a dramatic improvement over the sound of compressed MP3 music. In addition to playing music through the home entertainment system, it wirelessly broadcasts the music through the home to X-Fi Wireless Receivers, playing music from the player in Xtreme Fidelity. The Xdock has been certified by the Made for iPod program, giving us the first Xtreme Fidelity solution that we can market to a huge base of iPod users.

Similar to the Xdock, the Xmod Wireless is an X-Fi Wireless Music System that works with any audio player. The X-Fi Crystalizer technology in the Xmod Wireless dramatically improves the quality of M P3 music playback. It also allows the user to play music from any MP3 device including the iPhone and iPod wirelessly throughout the home through X-R Wireless Receivers. To differentiate our docking speakers from market competition, our X-Fi Sound System Z600 and X-R Sound System i600 for iPod incorporate the X-Fi Crystalizer technology that intelligently helps restore audio detail and vibrancy lost during compression of downloaded music and movies, and our X-Fi CMSS-3D technology allows users to enjoy surround sound experience over both speakers and headphones. The premium Aurvana X-R Headphones with noise-canceling technology are the world's first headphones with X-Fi technology that are designed to significantly improve audio playback quality for the iPhone, iPod and any other portable entertainment devices.

For the speaker and headphone products, in addition to the X-Fi-enabled speakers and headphones mentioned earlier, we have expanded our line of these products to include a new range of elegant lifestyle docking speakers for MP3 players, namely the PlayDock ZSOO for ZEN players and PlayDock iSOO for iPod, and the TravelSound series of portable speakers, such as TravelSound i and TravelSound iSO for iPod, and TravelSound ZEN Stone Docking Speakers. These speakers are designed as compact docking stations for Creative ZEN and Apple iPod players and offer superior sound quality with the use of premium full-range Neo Titanium micro-drivers. They can instantly transform ZEN or iPod players into vibrant entertainment hubs for any home or outdoor environments. For high-performance stereo speakers, we're building on the success of our GigaWorks T20 system with the introduction of the powerful GigaWorks T40. This professionally designed full-range speaker system features a three-driver design for rich acoustic audio performance and deeper bass effects, injecting new life to users' desktop music-listening experience. The power and performance of the 140 system makes it ideal for use with desktop and notebook PCs, and flat-panel monitors and televisions. For headphone products, we continue to build on the initial success of our premium Aurvana series of high performance headphones and earphones. During the period, besides the Aurvana X-Fi Headphones mentioned earlier, we have also introduced Aurvana DJ Headphones and Aurvana Live! Headphones.

Despite the challenging MP3 market, Creative continued to achieve the number two worldwide unit market share position, with our ZEN family of MP3 players. In line with our plan to streamline our MP3 player business to focus on a few strategic high-volume and profitable products instead of the previous large number of product offerings, we have reduced our new product introductions to only a few key products, the main ones being the Creative ZEN Stone, Creative ZEN Stone Plus and the recently introduced credit card-sized ZEN digital media player. The tiny Creative ZEN Stone is a featherweight 1GB flash memory MP3 player that comes in six vibrant colours. It is especially attractive to entry-level music enthusiasts. The Creative ZEN Stone Plus 2GB uses the same cool style and colours of the Creative ZEN Stone and added on a rich selection of features, including a small LCD screen, FM radio, clock, stopwatch and voice recorder. These two micro-sized players have opened up a new market for our MP3 players. In the recently introduced Creative ZEN, we have updated our award-winning Creative ZEN Vision:M digital media player by reducing its form factor to an incredible small size of a credit card, yet retaining and upgrading its many key features. The all new Creative ZEN, in 4GB, 8GB and 16GB flash memory, now has a stunning 2.S-inch colour screen that supports up to 16.7 million colours. It is the first Creative player to support MC music and unprotected iTunes Plus tracks from the iTunes stores, in addition to MP3 and WMA formats. Furthermore, it features an SD memory slot, so users can add virtually limitless additional storage capacity and carry all their digital content on the go.

Looking ahead, our near term plan is to focus on returning to profitability by focusing on several key areas. On the product front, these include continuing to grow our audio business in the X-Fi-enabled audio products segments, and the high-growth and higher-margin segments of the speaker and headphone market, while we continue to focus on a smaller number of strategic profitable products for our MP3 player business. On the operations front, we will continue exploring strategic alternatives for improvement, including in the areas of supply chain, procurement and inventory management, and reducing the overall level of operating expenses.

Going forward, we see significant growth opportunities for X-Fi in the consumer electronics and cell phone markets, in addition to the PC space. The X-Fi-enabled products we saw in the past year are just the beginning of many more new opportunities to expand X-Fi into more speaker systems and headphones, portable music and video players, digital entertainment products for the living room, and other X-Fi-enabled audio enhancement products such as the Xmod and X-Fi docking devices. Our participation in the "Made for iPod" program provides further market potential for X-Fi audio enhancement products in the iPod market.

We will continue to focus on our core competence - advanced audio technologies, and work on leveraging on our leadership in this
area and, together with the other key technologies we have, exploit them to develop the next generation of advanced, cutting edge,
ground-breaking personal digital entertainment products.

Sim Wong Hoo
Chairman & Chief Executive Officer

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2 comments:

ALien_BRain said...

Hey...
Where did you get that from?

Source?

Creative Fan said...

its exclusive ;)

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