Creative Technology (NASDAQ:CREAF), which makes portable MP3 players, reduced its sales outlook for the fourth quarter today. This news not only hit shares of Creative, but also dragged down shares of Apple (NASDAQ:AAPL) somewhat. Companies that supply the chips for such digital music players, such as PortalPlayer (NASDAQ:PLAY) and SigmaTel (NASDAQ:SGTL), also suffered, among others. It's enough to make one wonder if some investors were ripe for distress about portable music players.
According to Creative, instead of the 65% to 85% increase in revenues it previously expected, it now only expects a 50% increase. (Of course, many companies would envy a 50% increase in sales, but we're all familiar with the vagaries of disappointment on Wall Street, especially when it comes to companies that have coaxed high expectations from investors.)
Creative's press announcement cited a softer-than-expected market during the period, but also mentioned lower selling prices -- which makes me wonder if it has been difficult for Creative to woo customers given the popularity of the iPod, rather than if there's any distress for Apple itself.
On the other hand, within the last couple weeks, some have indeed theorized that sales of Apple's iPods are slowing. This has come despite prognostications that the MP3 player market is expected to boom. Recently, DisplaySearch Inc., for one, said that demand for MP3 players should double by 2009. There was also a recent study released by In-Stat, which predicted a quadrupling in demand for digital music players in four years.
Although this is an incredibly competitive arena right now, ruminating over Apple's outlook because of Creative's warning seems misplaced at the moment. Creative also said that its margins will come in lower than expected. The bottom line is that Creative is competing in a market that is not only highly competitive, but so far, has been dominated by Apple.
Admittedly, there has been plenty of talk that MP3-enabled cell phones could take a huge bite out of the sales of stand-alone MP3 players. The big question remains whether consumers will warm to these new products. For the moment, there are plenty of mixed messages and more than a good dose of speculation on both the positive and negative sides of the fence when it comes to assessing companies like Apple and Creative.
Although I can understand why this is bad news for Creative, as well as the companies that supply parts for its music players, extending the sour notes across the whole spectrum of MP3 player makers and chips suppliers seems a bit premature to me -- particularly for Apple.
However, that's not to say that investors shouldn't remain suitably cautious. There's no denying that the competition's steep and plenty of formidable companies are entering the fray.
Does Apple deserve to be included in today's negativity? State your case on our Apple discussion board.
Alyce Lomax does not own shares of any of the companies mentioned.
