TMO Reports - Creative's Lower Sales Forecast Also Affects Apple

by , 4:05 PM EDT, June 27th, 2005

Creative Technology on Monday announced that its sales this quarter will see 50% year-over-year growth, rather than the 65-80% previously forecast, according to a Reuters article on the Washington Post Web site as well as other news sources. The news sent the company's stock down over 10% to US$6.64 as of 3:30 PM EST and sent a ripple through related stocks: Apple was down 2% to $37, iPod chip supplier PortalPlayer was down over 6% to $19.70 and iPod parts suppliers SigmaTel and Synaptics were down almost 17% and just over 1% to $18.17 and $21.08, respectively.

Creative also said that its sales for the quarter, which ends June 30, will be approximately $300 million, less than the forecast of $360 million, and its gross margin will be 20%, rather than as much as 24%. Bloomberg News reporter Rebecca Barr quoted analyst Joe Phillips of Redwood Technimentals as saying: "There's one real king of the hill and that's Apple with the prestige product that's been very hard to compete with. We believe there is room for others, but it really takes another holiday season to make a judgment on the future of the sector.'' He said his "Buy" recommendation for Creative's stock is under review.

While some have sought to link Creative's problems with overall MP3 player market issues that could affect Apple and related companies, Piper Jaffrey analyst Gene Munster told The Mac Observer that "three-quarters of Creative's problems are Apple and one-quarter is traditional June weakness. The MP3 player market really just took off last year, so we don't have historical data to go by, but we do know that June is historically weak seasonally whether you're talking about MP3 players, computers or other electronics."

Other news also impacted Apple on Monday, with the Supreme Court's ruling against Grokster potentially helping the iTunes Music Store but also possibly hindering the iPod and related technology. Meanwhile, a Barron's report saw music-capable cell phones impacting Apple's iPod sales. Mr. Munster felt that many investors overreacted to all the reports, simply because "Apple is such a Hollywood stock that any little thing is amplified in [their] minds."

On the cell phone front, Mr. Munster said that "Apple needs a road map to deal with cell phones. That's two years away, but of course Wall Street will talk about it today. Ultimately, Apple needs to make iTunes accessible to cell phones. That could be bigger than the iPod, if they can license the iTunes IP in that area." Mr. Munster owns no Apple stock and does no banking business with it.

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