Fourth Quarter Financial Results

Creative has released their Q4 earnings report in which they still suffered some losses and are slowly making their way back to profitability. Like the previous quarter this was due to the collapse in flash prices:



Read the full report HERE

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Q4 Conference Call Summary

I just finished listneing to the live conference call about the fourth quarter earnings and will now provide a summary of what was discussed. I'll first summarize some areas more important to our website:

60GB Vision:M confirmed

-Although the speaker, Craig McHugh, President of Creative Labs did not specifically say 60gb Vision:M is coming soon in those words, he mentioned a 60gb player twice. The first was more vague as he was talking about HD players in general and how there are possibilities for higher capacities. The second time, he was asked about the MP3 market and had the following to say: "As I mentioned earlier, what we're doing with the Zen Vision:M at the $299 level and then increasing it when we add 60gb's.... we're seeing so much excitement around video..and as you know that requires the 20, 30, 60gb configurations which are ideally suited for the Zen Vision:M ...and Zen Vision"

X-Fi Everywhere

-They want to move X-Fi outside of the PC and focus on consumer electronics and bringing the technology to Mac platforms, and notebooks.
-They have plans for X-Fi everywhere (the way he said reminded me of Microsoft's "Live Anywhere"
-In the future we will see a product that will allow you to connect the Zen Vision:M to it and get X-Fi sound output. The same with other players as well.

Headphones

-Creative will be competing with high end companies (like Shure) with the release of their Zen Aurvana's and 3 more high end headphones/headsets in the future. They are taking this sector very seriously as they see potential for growth

Traveldock Speakers

-Creative wants to be the leader in portable speaker solutions, not only for Creative players but for other branded players as well. They want to expand their traveldock line so that various players can use them.

Listen to the entire conference call HERE

To see the rest of my summary click the link below:


Sales

1.) Breakdown of Sales;

By Category:

PDE (Personal Digital Entertainment) - 65% - This includes MP3 players and webcams
Audio - 13%
Speakers 13%
Other - 9%

Sales by Location

US - 46%
Europe - 37%
Asia 17%

2.) Creative's plan for profitability

a.) Reducing production and operating costs further
b.) Restructing and looking and product distrubition and supply chain
c.) Reducing Net inventory
d.) Returning gross margins to 20% (currently at 14%)
e.) Transitioning out of any areas where they aren't seeing growth or profits
f.) building more awareness for upcoming players

They expect profitability by the end of this year

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Q + A

Q: Any possibility of a settlement with Apple (relating to the patent infringement litigation)
A: We're open to reaching an amicable solution

Q: Has the drop in flash prices affected sales for flash players?
A: We didn't see a big impact from the drop in prices but in the future, with the release of the Zen V plus we will see improvements. We now have positioned ourselves to sell players at competitive prices, and have taken away the advantages that other companies had in this area

Q: What about Harddrive players?
A: HD players like the Zen Vision:M have strong global demand. They see opportunities for 60GB player in this area.

Q; To reduce costs, have you thought about more outsourcing?
A: Right now we're open to looking at different strategies to reduce production and operating costs. We have to figure out what we should continue to do "in-house" and what should be done by other companies.

Conlusions: It sounds like they have grreat potential for profits in the upcoming months. I think 2007 is going to be the year that X-Fi makes it huge. CES 2007 should be the place we will find out about these great products.