Creative 2009 Annual Report Download - page 2

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CREATIVE฀TECHNOLOGY฀LTD฀AND฀ITS฀SUBSIDIARIES
CHAIRMAN’S MESSAGE
Dear Shareholders,
In my message last year, I shared our vision to create a totally new Creative, with a new product line and a new business model,
leveraging on the innovative technologies we have developed over the years which will again see Creative set a major trend in
the industry and open up opportunities for all.
We started unveiling this vision with the launch of our System-on-Chip, the ZiiLABS ZMS-05 SoC, and the Zii Platform, ushering
in the era of StemCell Computing. The Zii Platform includes our Plaszma OS, Plaszma SDK and the Zii EGG for developers,
which runs the Plaszma OS or Android OS. The Zii Platform also includes the ZMS-05 System Module, a compact, media-rich
module targeted for outside developers and OEMs to use with Plaszma software to significantly reduce the design and manufacturing
complexity in creating next-generation devices and applications.
With our Zii Platform and the ZMS-05 System Module, we now have solutions to sell into the huge ‘Shanzhai’ OEM market in
China, which is a key part of our new business model. We recently announced our ‘Shanzhai’ OEM Marketing Program that
will outreach and build demand in this burgeoning OEM market. The ‘Shanzhai’ OEMs and other enterprising organizations
around the world may not have brands of their own, but they do have an insatiable appetite for ready-to-go technologies, and
can adapt quickly to new market opportunities. Using our Zii Platform and ZMS-05 System Module, these enterprising OEMs
can leverage on our state-of-the-art technologies and brand equities to rapidly bring a plethora of high quality and low cost Zii-
powered products to market. These products can possibly include mobile phones, TV set-top boxes, video conferencing systems,
digital signs, netbooks, eBooks and other mobile communication devices.
In addition, we plan to utilize the Zii Platform in a new line of our own Zii-branded products, including portable media players,
speakers, audio solutions and other personal digital entertainment devices.
The development of the Zii Platform has required a significant ongoing investment in research and development. Now that we
are bringing the Zii Platform to market and beginning to deliver on our new vision, we will also require a substantial investment
in marketing to build our new business model. We are prepared to make these strategic expenditures, as our strong cash position
of over US$250 million provides us with the financial flexibility to continue to invest in the development and marketing of the
Zii Platform, and to take advantage of the opportunities for new product lines and businesses offered by the Zii Platform.
Our strong cash position was a bright spot in an otherwise difficult and challenging fiscal year for Creative, with an extremely
turbulent and uncertain global economic environment.
With the onset of the unprecedented crisis in the global financial markets and the resulting global economic downturn, we took
aggressive measures to position Creative to meet the challenges in the tough period ahead of us. We undertook a complete
restructuring of our worldwide sales and marketing operations, including closing or consolidating certain operations that were
too costly or underperforming. We significantly lowered our operating expenses by sharply reducing our international headcount
and infrastructure costs, primarily in Europe and the US, while simultaneously driving down our inventory position, substantially
reducing inventory exposure.
The global economic downturn had a negative impact on the demand and selling prices for our products across all product
categories and, combined with the closure or consolidation of certain businesses, resulted in substantially lower revenues and
gross margins for the year.
Sales for fiscal year 2009 were US$466 million, 37% lower than the previous fiscal year sales of US$737 million. Gross profit
as a percentage of sales came in at 17% in fiscal 2009, down from 22% in fiscal 2008. Net loss for fiscal 2009 was US$138
million, compared to a net income of US$128 million in fiscal 2008. Net loss for fiscal 2009 was impacted by the lower sales
and gross profit in the year, and restructuring charges of US$11.2 million, exchange losses of US$24.9 million, investment losses
of US$13.2 million, and a provision of US$12.8 million for potential unrecoverable advances due from a former subsidiary that
had been divested in 2007. Net income for fiscal 2008 included a US$148 million gain from the sale of Creative’s headquarters
building (Creative Resource) in Singapore, an exchange gain of US$14.6 million, an investment gain of US$18.8 million and
restructuring charges of US$11.7 million.
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