Creative Sells 2 Million MP3 Players

Creative late Thursday announced its quarterly results for the first three months of 2005, saying it had sold another 2 million music players, equaling its totals from the holiday quarter of last year.

While Creative is one of the few Windows-based players having success in a market dominated by the iPod, the company admitted that strategic pricing by Apple has cut into its profit margins.

"This was our second consecutive quarter of selling two million MP3 players, an achievement that further positions us as an industry leader in the explosive MP3 market," Sim Wong Hoo, Creative's CEO said in prepared remarks.

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Hoo said that his company will continue to aggressively price its players, but warned that it would move profit margins lower in the short-term.

Craig McHugh, president of Creative conceded that the company is beginning to feel the financial pressure of Apple's strategies. McHugh said that the price drops in the iPod Mini were larger and the aggressive pricing of the iPod Shuffle was lower than expected. Due to this, Creative's gross margins came in lower than the company's guidance.

Creative expressed optimism that the higher sales of its players will help it to strike better deals with parts suppliers. This would help drive down the cost of manufacturing the players and curb the decrease in profits that the company saw during the past quarter.

Creative struck deals with Circuit City and Best Buy to carry the Zen Micro, the company's most popular player during the quarter, which substantially increased the availability of the product. Competitor Apple had been selling the iPod in Best Buy stores since 2002.

Earlier this month, Apple announced it had sold 5.3 million iPods during the first three months of 2005, an increase of about 700,000 units over the holiday quarter, and a 525 percent increase over the year-ago quarter.

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