Creative 2002 Annual Report Download - page 4

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CHAIRMAN’S MESSAGE
Dear Shareholders,
Fiscal 2002 continued to be an extremely difficult and challenging year for Creative and the markets we serve. The
Company’s performance continued to be affected by the severe downturn in the global technology market and decline
in the global equity markets which started the previous year and worsened during the year. These ongoing negative
market developments have continued to adversely affect our operating results, and have also resulted in the company
taking additional write-downs in our investment portfolio.
Despite these challenging market conditions, Creative was still able to realize a number of achievements, in terms of
corporate-wide initiatives to improve operating results as well as on the product and technology front.
We had recognized the difficult and uncertain economic environment and, during the year, we aggressively persevered
with the measures we had started last year to position Creative to meet the challenges in this tough period. In particular,
we continued to focus on profitability and embarked on various operational improvement programs. These include our
on-going efforts to redirect 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 products. We have also taken
further action to institute operational improvement programs, including cost reduction and expense control efforts in all
aspects of the business.
The success of these efforts is reflected in the financial results for the year – significant improvements in gross margins
and reduction in operating expenses, resulting in an increase in operating profits even with the reduction in revenue.
Sales for fiscal year 2002 were $0.8 billion, a reduction of 34% compared to $1.2 billion for the fiscal year 2001. Gross
profit as a percentage of sales was 33% in fiscal 2002 compared to 27% in fiscal 2001. Net loss for fiscal 2002 was $20
million, compared to a net loss of $130 million in fiscal 2001. The loss for fiscal 2002 included net investment losses and
write-downs totaling $45 million and a one-time charge of $26 million for in-process technology relating to the acquisition
of 3Dlabs, while the loss for fiscal 2001 included net investment losses and write-downs totaling $149 million and
restructuring and other charges of $31 million. Excluding these investment losses and other charges, the results would
have been a net income of $52 million for fiscal 2002 and $49 million for fiscal 2001.
On the product and technology front, the past year has seen what was probably the most exciting and innovative line
of products yet released by Creative. With the launch of these new and exciting products, some of which are set out
below, I am proud to say that Creative has matured to become a major force in a whole new market which we had
pioneered - the Lifestyle Digital Entertainment market. The latest range of products from Creative, covering the major
product categories such as PC audio, Lifestyle Digital Entertainment products, speakers, graphics and entertainment
keyboards, include the following :
In the PC audio market, the Sound Blaster® Audigy™, launched in August 2001, established itself as the premier PC
sound card with an unbeatable combination of superb audio clarity and functionality. The Audigy’s EAX® ADVANCED
HD™ audio effects have been embraced by the gaming community with exciting software titles taking advantage of its
unique features. The new Sound Blaster Audigy 2, launched in September 2002, will significantly raise the bar for
PC audio standards even higher with new features including 24-bit ADVANCED HD that supports 24-bit/192kHz audio
with an astonishing 106 dB signal-to-noise ratio. It is the only PC sound card with Advanced Resolution™ DVD-Audio
playback, officially certified Dolby® Digital EX 6.1 surround sound, THX®-certification and super fast connectivity with
SB1394, for an exceptional audio experience. The Sound Blaster Extigy™, Creative’s first external sound card, comes
in a stylish enclosure that simply connects to a desktop PC or laptop via a USB connection for hassle-free use. It comes
with excellent 24-bit digital audio clarity, Dolby Digital 5.1 surround sound and a host of connections.
For the Lifestyle Digital Entertainment market, new products from Creative include the NOMAD® Jukebox 3, NOMAD
Jukebox Zen™ and the NOMAD MuVo™ digital audio players. The NOMAD Jukebox 3 boasts a large 20GB storage
capacity, a useful scroll wheel for quick navigation, audiophile sound quality and EAX audio technology featuring Smart
Volume Management. The NOMAD Jukebox Zen, launched in October 2002, is a small pocket-sized hard disk-based
MP3 player with both SB1394 and USB connections. Encased in a stylish, pocket-sized anodized aluminium casing, it
measures less than an inch thick but yet packs up to 8000 songs. It has a large storage capacity, powerful music management
tools, personalised features, high quality audio (signal-to-noise ratio of up to 98dB), SB1394 transfer, EAX technology