KGI: Curb your enthusiasm over Creative Tech’s Super X-Fi launch

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Investors should remain cautious over Creative Technology despite reports of a strong launch for its Super X-Fi AMP, KGI said in a recent note.

Creative Technology said in late September that it had “phenomenally strong” sales at the launch of its Super X-Fi online store and its new product, the SXFI AMP dongle. Sim Wong Hoo, CEO of Creative, said in a statement that in the first 20 minutes, 600 units were sold.

KGI noted that while sales for the first 20 minutes were impressive, even company management had cautioned against expecting that the 30 units per minute pace would continue.

“Similarly, we are of the view that 20 minutes is too small a sample size to be used for any meaningful sales forecasts,” KGI said.

The brokerage was also cautious on how much earnings accretion to expect from the new products.

It forecast that Creative could sell around 40,000 headphones or dongles in the first year, translating into revenue of around US$6 million. Assuming a 20 percent net margin for Super Xi-Fi products, that suggests the segment would contribute an additional US$1.2 milion to Creative’s bottom line, it estimated.

KGI called that “inadequate” as Creative’s net losses have averaged US$27 million over the past five years, excluding one-off earnings from lawsuits.

The product segment also faces intensified competition since the January announcement of the Super X-Fi line, it noted.

“Due to the emergence of more players with similar technologies, we believe the chances of any single player gaining a first mover advantage has diminished drastically,” KGI said. “Judging from recent trends, we expect more companies with hefty budgets to enter the market should demand in 3D audio products pick up in the coming quarters.”

KGI doesn’t rate the stock, saying it needed more clarity on sales and industry trends before it can value the company with a target price.

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