Pay cut for Creative's senior staff in S'pore

Senior management at Creative Technology Ltd's Singapore operations has agreed to take a 10-20 percent pay cut as part of the company's ongoing cost-cutting measures, said its chairman and CEO Sim Wong Hoo.

SINGAPORE--Senior management at Creative Technology Ltd's Singapore operations has agreed to take a 10-20 percent pay cut as part of the company's ongoing cost-cutting measures, said its chairman and CEO Sim Wong Hoo.

The locally-based company--known worldwide for its Sound Blaster sound cards and Nomad JukeBox portable music players--said it's also implementing a hiring freeze globally to help return the company to profitability.

The salary cut follows Creative's retrenchment exercise in March, when it laid off 10 percent of its 5,500 staff worldwide and closed a plant in Pennsylvania, US. Over 100 staff in Singapore were affected then.

Sim told reporters this morning that there are no immediate plans for further layoffs, as he would rather redeploy staff across departments.

However, he could not rule out the prospects of further job cuts after the Christmas period should the company's new Sound Blaster and Cambridge SoundWorks audio and speaker products (to be launched next month) fail to meet sales expectations.

Global staff strength currently stands at about 4,800.

Higher margins a priority
Creative today announced its results for the year ended June 2001, reporting a higher-than-expected net loss of US$130.4 million, including a US$148.5 million write-down on its investments in technology companies.

This was compared with earnings of US$161 million a year ago.

"In tough times, we will have to narrow our focus...The PC market is not growing as we would like to," Sim noted. He was referring to declining demand for sound cards in the Original Equipement Manufacturers (OEM) space, with PC manufacturers cutting their sales forecasts.

Creative's major OEM customers include Dell Computer Corp and Gateway Inc.

Retail customers, on the other hand, are still willing to spend to upgrade their existing systems although they may be more reluctant to buy a new PC, he said.

With that in mind, Creative intends to refocus on its high-margin audio products in the retail sector.

Overall, Sim hopes to see gross margins top 30 percent for the next fiscal year (ending June 2002). Gross margins last year were 28-29 percent, according to Creative senior vice president and chief financial officer Ng Keh Long.

The new product offerings--slated for launch in September--will help increase the average selling price (and margins) of Creative's audio products, said Sim. However, he would not reveal revenue targets or pricing details for the new products.

The CEO does not expect immediate price cuts for existing products, such as Sound Blaster Live! which will soon be replaced as Creative's new top-of-the-range audio system.

As part of the shift in focus, Creative will also be "de-emphasizing" its storage (CD-ROM) and graphics products, which offer "low margins and high inventory risks", said Sim.

This will in turn "significantly lower" the company's total revenues for 2002. "We will not chase after revenues at the expense of profitability in turbulent times," he added.

Revenue forecasts for Q1
Looking forward, Sim expects Creative to miss its one-year US$100 million sales target (from September 2000 to September 2001) for the JukeBox, citing reasons such as the sudden economic downturn and the lower selling price.

The retail price of the JukeBox has dropped 40 percent to US$299 (or US$269 over the Internet) since it began shipment last September.

Overall, Creative expects revenues of US$170 million to US$190 million for its first fiscal quarter ending September 2001, compared with US$234.2 million in the fourth quarter.

The company also expects to be in the black in the September quarter with earnings per share of US$0.04 to US$0.05, Ng said. For the full year ending June 2002, it expects earnings per share of US$0.60.

Creative's share price ended the day at S$14.40, down S$0.30, on the Singapore Exchange. On the Nasdaq, its share price rose US$0.02 to close at US$8.18 yesterday.

Table: Revenue Split

Product Family Q4, 2001 (%) Q4, 2000 (%)
Audio 59.1 47.2
Personal digital entertainment 5.3 4.6
Storage 22.3 24.0
Graphics 1.6 16.9
Others 11.7 7.3
Source: Creative

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