Creative 2001 Annual Report Download - page 2

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CHAIRMAN’S MESSAGE
Dear Shareholders,
Fiscal 2001 was a year of significant changes and tremendous challenges for Creative. We started the year positively
with an exciting product line-up and business plan, and we were optimistic about the opportunities in the upcoming
year. However, the global technology market experienced a sudden and rapid downturn during the holiday season,
and has subsequently worsened during the past nine months, together with a steep decline in the global equity
markets. Creative was not immune to these negative market developments which have adversely affected our
operating results and resulted in the company taking significant write-downs in our investment portfolio.
Sales for fiscal 2001 were $1.2 billion compared to $1.3 billion for the fiscal 2000. Gross profit as a percentage of
sales was 27% in fiscal 2001 compared to 30% in fiscal 2000. Net loss for fiscal 2001 was $130 million, compared
to net income of $161 million in fiscal 2000. The loss for fiscal 2001 included net investment losses and write-downs
totaling $149 million and restructuring and other charges of $31 million while net income for fiscal 2000 included
net investment gains of $103 million and other charges of $20 million. Excluding these investment gains/losses and
other charges, net income would have been $49 million for fiscal 2001 and $78 million for fiscal 2000. We ended
fiscal 2001 with a cash balance of $168 million. Although this was down when compared with $286 million in fiscal
2000, the reduction reflects the utilization of $91 million during fiscal 2001 for the repurchase of 8 million shares
under the share buy-back program and the payment of $39 million for dividends.
During the year, in view of the increasingly difficult and uncertain economic outlook, we took measures to position
Creative to meet the challenges in the tough period ahead of us. We redirected our strategy to focus on profitability,
by concentrating on revenues from the higher-margin core audio segments, namely sound cards, speakers and
personal digital entertainment (PDE) products. We are also de-emphasizing the lower-margin and higher-risk storage
and graphics product lines. In addition, we implemented operational improvement programs, including cost reduction
and expense control efforts in all aspects of the business. At the same time, we focused on managing our inventory
position to reduce inventory exposure, especially in high-risk and low-margin product segments.
On the products and technology front, we have continued to innovate and develop new products, maintaining our
leadership position in the digital entertainment market. We have also expanded our product offerings, especially in
the three core audio categories: sound cards, speakers and PDE.
In the sound card category, Creative launched the 7th generation Sound Blaster® cards – the Sound Blaster Live!™
5.1 line of sound cards, providing true Dolby® Digital 5.1 multi-channel sound to consumers, which allows them to
experience total sound immersion – just like at the movie theater. In addition, we expanded our target market base
and announced Sound Blaster Live! audio solutions for Macintosh® users and SUN™ workstation users.
In August 2001, we launched our groundbreaking 8th generation Sound Blaster Audigy™ cards. We believe the
Sound Blaster Audigy sound card will enjoy the same success of its predecessors, and will set a new benchmark for
PC audio. Powered by the Audigy processor, Sound Blaster Audigy sound card delivers audio clarity of 24 bit/96kHz
and SNR of 100 dB, comparable to professional audio systems and surpassing most high-end home stereo solutions
with exceptional realism in audio playback. Sound Blaster Audigy is also the only audio platform capable of delivering
EAX® ADVANCED HD™, which enables high definition Multi-Environments and features four times the processing
power of the previous Creative audio processor, the EMU10K1® used in the Sound Blaster Live!. We believe these
features provide compelling reasons for owners of other audio cards, and even of our own existing Sound Blaster
audio cards, to upgrade. The Sound Blaster platform will be further extended when we launch an external encapsulation
of Sound Blaster, which is targeted at portable notebook users and closed box PCs, in the later part of fiscal 2002.