Creative Q2 FY10 Another Loss Quarter, Expect Q3 To Report Loss Too ~ Creative Labs Zen MP3 Players Sound Blaster Card
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Thursday, February 4, 2010

Creative Q2 FY10 Another Loss Quarter, Expect Q3 To Report Loss Too



Creative bleeds again and not sure when they can put a plug on this gapping wound. Partly due to lower revenue from digital audio player, restructuring cost and R&D expenses. Going forward Creative will need to continue to invest in product development, particularly for the Zii Platform.

Operating expenses may increase in the coming quarters. The overall market for Creative’s current products remains difficult and unpredictable and the Group expects to report an operating loss in the current quarter Q3 FY10.

Things are going to get tough. So tighten your belt.

Net Sales
Net sales for the second quarter of FY2010 decreased by 48% compared to the same quarter in FY2009, and net sales for the first half year of FY2010 decreased by 49% compared to the same period in FY2009. The decrease in net sales was mainly due to lower revenues from digital audio players. The lower sales were primarily due to the impact of the global economic downturn and the Group’s decision to consolidate certain businesses in order to focus on specific markets that provide best opportunities to improve business going forward.

Gross Profit
Gross profit was 25% in the second quarter and the first half year of FY2010 compared to 14% in the second quarter of FY2009 and 18% in the first half year of FY2009. Gross profit margin in the second quarter and the first half year of FY2010 at 25% was consistent with the mix of products sold. Gross profit margin in the second quarter and the first half year of FY2009 was negatively impacted by economy downturn which resulted in inventory write down and a higher percentage of sales coming from digital audio players which have lower gross profit margin.

Net Loss
Net loss for the second quarter of FY2010 was US$5.3 million compared to US$35.5 million in the second quarter of FY2009. Net loss for the first half year of FY2010 was US$6.3 million compared to US$76.3 million in the first half year of FY2009.

Following the restructuring efforts in the previous year to reduce operating costs, and in line with the decrease in sales, selling, general and administrative expenses in the second quarter and first half year of FY2010 decreased by 41% and 46%, respectively, compared to the second quarter and first half year of FY2009.

Research and development expenses in the second quarter and first half year of FY2010 decreased by 10% and 14%, respectively, compared to the second quarter and first half year of FY2009. There were smaller reductions in research and development expenses as the Group needs to continue to invest in product development in areas that are strategic
to the Group, cutting back development spending only in product areas that are not strategic going forward.

Other gains of US$2.6 million in the second quarter of FY2010 comprised mainly of US$1.7 million government grant to a subsidiary company (this entity was an associated company in the previous financial year). Other gains of US$13.1 million in the first half year of FY2010 comprised mainly of a US$4.9 million gain on disposal of investment in an associated company, foreign exchange gains of US$5.9 million and a US$1.7 million government grant to a subsidiary company.

The government grant was given previously in respect of certain fixed assets used for a project and was recorded as a deferred revenue. In the second quarter of FY2010, following the completion of the project which the grant was given, the subsidiary company accelerated the depreciation of the related fixed assets that are no longer in use and recorded
an additional depreciation charge of US$1.7 million. Correspondingly, the balance of US$1.7 million in the deferred revenue account was recognized as other gains in the income statement.

Other losses of US$15.9 million in the second quarter of FY2009 comprised mainly of an exchange loss of US$12.7 million and a US$3.5 million impairment in value of financial assets, available-for-sale. Other losses of US$40.3 million in the first half year of FY2009 comprised mainly of an exchange loss of US$28.1 million and US$12.4 million impairment in value of financial assets, available-for-sale following the onset of the global financial crisis.

The functional currency of the Company and its subsidiaries is predominantly the US dollar and accordingly, gains and losses resulting from the translation of monetary assets and liabilities denominated in currencies other than the US dollar are reflected in the determination of net income (loss). The exchange differences were mainly due to the cash
and cash equivalent balances held by the Group. Besides US dollar, cash and cash equivalents were held mainly in Euro, Singapore dollar, British Pound and Japanese Yen. In the second quarter of FY2010, there were no major exchange differences. In the first quarter of FY2010, these currencies appreciated against US dollar while they declined significantly against the US dollar in both the second quarter and first half year of FY2009.

Income tax was a credit of US$2.1 million in the second quarter of FY2010 and US$2.0 million in the first half year of FY2010. Tax credit of US$2.1 million in the second quarter of FY2010 was mainly due to US$2.0 million write back of deferred tax liability pertaining to offshore interest income remitted to Singapore in the quarter. Such interest income remitted during this period is not taxable now due to a tax concession granted by the Singapore tax authorities.

5 comments:

Anonymous said...

Osim has outperformed Creative since...

Jimmyboy88 said...

yea even osim has turned black
osim invest in marketing, employing top taiwanese singers/actress such as SHE and lin zhi ling

Anonymous said...

Sell all your Creative shares and convert them into Osim or consider DMX...

Anonymous said...

except Creative everybody else is Creative now a days. lols

Jimmyboy88 said...

but come to think of it, the creative price is very low as compared with its $20+ during its prime time

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