One year after launching a direct challenge to Apple Computer's iconic iPod, Creative Technology is finding it tougher than expected to bite market share off the US-based digital music player giant.
Creative went into the red for the first time in three years with a US$31.9 million loss in its fourth quarter to June, compared with profits of US$6.63 million a year ago. The drop was worse than market expectations.
In contrast, Apple continues to shine, with net profits in its third quarter to June rising more than five-fold to US$320 million from a year ago.
Creative's poor June-quarter performance came about despite a 51 percent jump in revenues to US$305.4 million from US$201.8 million in the same period a year ago.
A bruising price war has hurt Creative, but analysts said the dismal June-quarter figures also exposed the fact that the Singaporean firm is seen to be lacking the "cool" factor associated with the iPod and other Apple products.
Apple, they said, has successfully marketed the iPod as a must-have player for trend-conscious buyers while Creative instead chose to focus on the technical aspects of its Zen MP3 players.
"It seems the problem is they are not seen as a trendsetter because that is basically what Apple is doing," said Claudio Checchia, research manager of consumer devices at industry monitor IDC in Singapore.
"You buy into the brand [Apple], you buy into the cool factor," he said.
Creative Technology, listed locally and on New York's NASDAQ, said last week that unit sales during the June quarter actually rose more than 260 percent from a year ago but were still far short of the company's target.
"We had set our targets higher for unit volume and average selling prices for our MP3 players than we achieved in the period," said Craig McHugh, president of subsidiary Creative Labs.
"Missing our targets caused us to miss our revenue goals, and we were not able to reduce our inventory levels as rapidly and as much as we had expected," he said.
As a result of the price war, the company was also forced to write down US$20 million off its inventory.
Even Apple's other rivals concede it has the edge when it comes to designs and has hit on the right message to consumers, enabling it to grab an estimated two-thirds share of the US market and overall leadership in the world market.
"It's all about brand positioning ... in terms of design, they have the best so far and they position themselves like Nokia," said a marketing manager from a rival Asian consumer electronics powerhouse who did not want to be named.
"They appeal to those who are trendsetters, people who don't mind paying a bit more, and the MP3 has become a fashion accessory just like the handphone," she said.
Creative is, however, not conceding defeat yet in the MP3 wars, having unveiled plans to start selling soon the Zen Vision, a portable digital music player that can also store photos and videos.
"With the Zen Vision, you can now carry all of your music, all of your photos and all of your favorite videos in the palm of your hand," said Sim Wong-hoo, chief executive of Creative Technology.