By Richard Menta 4/22/05
There is some good news and some bad news for Creative Technologies this quarter. The good news is that the company sold 2 million players worldwide, roughly 40% of what the iPod achieved worldwide this quarter. Creative also set a record for total sales. The bad news is increased competition significantly lowered profits.
The iPod Shuffle can be blamed partly for this. When Apple introduced its first flash unit it did so at very competitive prices. It was the first player to offer 512MB for under $100 and a full 1GB for under $150. The secret for Apple was to sell the iPod Shuffle sans display, dropping costs.
"Strong sales of the Zen Micro 5G-bytes [player] and MuVo Micro flash player helped us to achieve sales of 2 million MP3 players in the period," said Craig McHugh, president of the company's US arm Creative Labs Inc. "During the quarter we reduced the selling price following sharp price drops by Apple on the Mini and the introduction of flash players as lower than expected prices. These were the major factors in the decrease of gross margins."
Creative had to cut prices to compete and has done a reasonably good job against the dominant iPod. Granted, part of this success is due to the fact that Creative's players are sold in markets Apple has yet to enter, but Creative has a strong name brand and with $100 million devoted to marketing this year the company looks to expand upon its presence in the US market.
I would like to say I find it interesting that the Asian news sources focus on the strong player sales (good news) while the US news sources focus on the decreased profits (bad news). I personally think Creative's chaiman Sim Wong Hoo has the right attitude by focusing on the long term potential.
"The strategy is to drive market share," said Hoo. "This was
our second consecutive quarter of selling 2 million MP3 players, an achievement
that further positions us as an industry leader in the explosive MP3 market."
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