MP3 music player maker Creative`s US patent lawsuit against Apple has boosted the loss-making Singapore firm`s shares, but analysts fear it will disrupt management turnaround efforts.
Creative Technology, the world`s number two MP3 player maker, whose Nomad and Zen players compete with Apple Computer`s market-leading iPod, filed patent complaints against Apple in federal court and with a US trade agency on Monday.
The company is seeking an injunction and increased damages for alleged violation of its "Zen" patent. It is also seeking an exclusion order and a cease-and-desist order against Apple that would prohibit the US firm from selling, marketing or importing its popular iPod portable music players into the US.
This morning, Creative shares rose as much as 9.3%, to S$10, on thin volume, buoyed by news of the patent infringement suit, which relates to a system developed to organise and access songs. At midday, the stock was up 7.7%, at S$9.85.
Slowing
Apple shares fell more than 4% on Tuesday in active trade on Nasdaq, due partly to the patent lawsuit and on concerns its business may be slowing.
"The stock price is just a knee-jerk bounce," said CIMB-GK Securities analyst Jonathan Ng.
"The lawsuit will be a long process, and even if they win, any damages awarded will be a one-off gain. This does not change Creative`s business fundamentals and the fact that there is nothing much to look forward to on the operations front."
Kim Eng Securities analyst Gregory Yap said Apple was unlikely to give up its lucrative iPod business without a long, expensive fight - time and money that loss-making Creative cannot afford to waste.
"Creative`s suit against Apple may bring relief to the share price in the short term, but in the long term, it will distract and divert management attention and company resources when both are needed to turn around the ailing business," he said.
Earlier this month, Creative swung to a larger-than-expected quarterly net loss of $114.3 million in its fiscal third quarter ended March, compared with a $15.9 million profit a year ago, after a plunge in music player prices squeezed margins and forced it to write down its inventory.
Return to profit
But Creative said it aimed to return to profit in the second half of 2006 by focusing on high-margin products and cost cuts.
While Creative struggles, market leader Apple last month posted a forecast-beating 41% jump in quarterly profit and said iPod sales topped 8.5 million.
According to research firm International Data Corporation, Creative was ranked second after Apple in the global flash memory-based MP3 player market in 2005, with a 4.7% share against Apple`s 16.9%, and number two in the hard-drive music player market with a 15.8% share against Apple`s 72.2%.
Creative also competes with South Korea`s Samsung Electronics, which produces the Yepp players, Japan`s Sony, and South Korea`s Reigncom, whose iRiver players have won good reviews.
Mobile handset makers Nokia and Motorola are also adding MP3 functions to high-end music phones.
Creative is expected to post a net loss of $116.6 million for the full year ending 30 June, according to the average forecast from 10 analysts polled by Reuters Estimates.
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