Investors didn't appear too thrilled with digital-music company Creative Technology's
Singapore-based Creative, which is taking on Apple Computer
For the record, those numbers ignore a big investment gain and an even bigger asset impairment charge this year, as well as a tax writeback and investment gain last year. If you include those numbers, net income fell to $11.8 million from $41.5 million last year.
Is the market too hard on Creative? It's a question worth considering. The company's products are selling well, as evidenced by the huge bump in sales. Management, meanwhile, expects a similar revenue boost in Q3. And while margins have fallen year-over-year, they're expected to hold fast sequentially during the current quarter. If the company can manage this while boosting sales at the impressive rate it's experiencing, profit growth can't be far off.
For now, investors will probably have to accustom themselves to swings in their company's market value. It's thrown itself into a growing but highly competitive marketplace currently dominated by one company. The long-term trend, meanwhile -- and this is a good thing in consumer electronics, because it means there's sustained, rather than faddish, demand -- is for prices to come down, testing margins as volume increases.
Digital-music investors need to remember that their business becomes less technology-focused each day -- at least relative to the importance of marketing, order fulfillment, and component pricing. (Investors in PC makers like Dell
Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story.