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Creative Technology Announces Third Quarter Fiscal 2001 Results

SINGAPORE - April 27, 2001 - Creative Technology Ltd. (NASDAQ: CREAF), the worldwide leader in digital entertainment products for the personal computer and the Internet, today announced financial results for the third quarter of fiscal year 2001, ended March 31, 2001. All financial results are stated in U.S. dollars.

Sales for the third quarter were in line with the Company's expectations at $263 million. This compares to sales of $330 million for the same quarter of last year.

The Company reported a net loss for the quarter of $101.0 million or $1.27 per share. This includes one-time charges of $31.0 million and a write-down of investments of $75.4 million, which accounted for a combined $106.4 million or $1.34 per share. Excluding these charges, the Company would have reported net income for the quarter of $4.6 million or $0.06 per share. Comparative results for the third quarter last year were net income of $88.3 million and earnings per share of $1.01. This included net investment gains of $70.6 million or $0.80 per share.

The third quarter one-time charges include a previously announced restructuring charge totaling $19.8 million, which comprises $7.8 million applied to cost of goods sold and $12 million of operating expense charges. Also included in operating expenses is a one-time charge of $11.2 million resulting from the write-off of the remaining value of the assets previously acquired from Aureal Semiconductor. The Company also took a $75.4 million write-down against its investment portfolio. This includes a previously announced $65 million write-down of privately held technology companies, consistent with the Company's prior announcement; and a net unrealized loss of $10.4 million on quoted investments, reflecting the further worsening of public equity markets at the end of the quarter.

Sales for the first nine months of fiscal year 2001 were $994.4 million, compared to $1.036 billion for same period in the previous year. Net loss for the first nine months of fiscal year 2001 was $56.9 million, or $0.72 per share, including the previously noted one-time charges and write-down of investments totaling $106.4 million in the quarter, and net investment gains of $2.9 million from the previous two quarters. This compares to net income for the first nine months of the previous year of $143.6 million or $1.66 per share, including net investment gains of $84.2 million.

"Between the difficulty of the economic climate and the restructuring of our businesses, this was a challenging quarter," said Craig McHugh, president of Creative Labs, Inc. "However, we achieved some important successes during the period. We made significant reductions in our operating expenses that will better position us going forward. At the same time, we met our revenue target as we continued to generate strong demand for retail audio products. We substantially reduced our inventory level, achieving our target of net inventory of $200 million at the end of the quarter. And, excluding the effect of the restructuring charges on cost of goods sold, we met our margin guidance of 27%."

"During the quarter, we sustained, for the first time, a net loss from our investment portfolio," said Creative Chairman and CEO Sim Wong Hoo. "The $75 million write-down from our investment portfolio should be taken in the perspective that we posted realized gains of $103.4 million in fiscal year 2000, including $70.6 million for the same quarter last year. Many of our investee companies were hit hard by the downturn in the private and public equity markets, causing us to write-down our holdings. However, we do believe that a number of our investee companies continue to show promise, both strategically and financially."

"At the same time, we took serious actions to better position Creative in a tough marketplace," continued Sim. "These actions, including measures to reduce the cost of our products and aggressive pricing on the NOMAD Jukebox, position us to increase market share and solidify our leadership position in the strategic digital audio player market. The digital audio player market represents huge potential; and, with our lower cost structure, we plan to drive this market and capitalize on it."

During the quarter, Creative continued its share buy-back program, repurchasing approximately 892,000 shares at a cost of $8.6 million. Subject to market price and conditions, and securities law restrictions, the Company plans to continue its buyback program.

Recent Announcements

  • Creative shipped the Sound Blaster® Live!? for Macintosh, providing Power Mac® G3 and G4 users the quality of digital surround sound.
  • Creative shipped the 6GB NOMAD® Jukebox C-Series portable digital audio player at a compelling $269 Internet price point, along with the 32MB NOMAD II C-Series portable digital audio player for $129.

Awards & Accolades

  • Sound Blaster Live! Platinum 5.1 earned the "Stamp of Approval" from Computer Games Magazine and the "Editor's Choice" from PC Gamer. Sound Blaster Live! X-Gamer 5.1 and MP3+ 5.1 won "Editor's Choice" awards from PC Gamer.
  • The NOMAD II MG won the "Kick Ass Award" from Maximum PC.
  • Cambridge SoundWorks® Desktop Theater? 5.1 DTT3500 Digital speakers garnered the "Editor's Choice" from Computer Gaming World, and the "Stamp of Approval" from Computer Games Magazine. Cambridge SoundWorks® FourPointSurround? FPS2000 Digital speakers also won the "Editor's Choice" Award from Computer Gaming World.

Listen to Creative's Q3 FY01 Analyst Conference Call:

Link to Q3 earnings conference call live on April 26th at 4:00 p.m. PDT
via Creative's Investor Relations Web site: https://www.creative.com/investor
Replay available from shortly after the end of the conference call until 5/3/01
via link from the IR web site or by calling 1-800-633-8284, reservation # 18596093

Balance Sheets & Statements of Income

# # # #

Creative (Nasdaq: CREAF) is the worldwide leader in digital entertainment products for the personal computer and the Internet. Famous for its Sound Blaster® and for launching the multimedia revolution, Creative is now driving digital entertainment on the PC platform with products like its highly acclaimed NOMAD® Jukebox. Creative's innovative hardware, proprietary technology, applications and services leverage the Internet, enabling consumers to experience high-quality digital entertainment -- anytime, anywhere.

This announcement refers to products and pricing sold in the United States of America. Pricing and product availability is subject to change.

Sound Blaster and the Creative logo are registered trademarks and Live! is a trademark of Creative Technology Ltd. in the United States and/or other countries. Cambridge SoundWorks is a registered trademark of Cambridge SoundWorks, Inc. in the United States and/or other countries. NOMAD is a registered trademark of Aonix and is used by Creative Technology Ltd. and/or its affiliates under license. All other brand and product names are either trademarks or registered trademarks of their respective holder and are hereby recognized as such.

Safe Harbor for Forward-Looking Statements Under The Private Securities Litigation Reform Act of 1995:
Except for the historical information contained in this press release and on the corresponding conference call, the matters set forth in this press release (including all references to future financial performance, products and marketing efforts) and the call are forward-looking statements within the meaning of the ``safe harbor'' provisions of The Private Securities Litigation Reform Act of 1995. Readers of this press release and listeners to the call are cautioned not to place undue emphasis or reliance on these forward-looking statements which reflect management's analysis, judgement, belief or expectation only as of the date of this press release. These forward-looking statements are subject to certain assumptions, risks and uncertainties that could cause actual results to differ materially from those set forth or implied in the forward looking statements. Such assumptions, risks and uncertainties include, among others: the cost-cutting measures Creative plans to take will be insufficient; reduction or cancellation of sales orders for Creative products or other unexpected or unplanned events that could cause Creative to miss its revenue guidance or negatively impact its margins; the timely development, ramp, shipment, delivery, and market acceptance of new products, including Creative's next generation audio, personal digital entertainment appliances, including the WebCam line of products and specifically, the NOMAD and NOMAD Jukebox line of products, CD-ROM, CD-RW and DVD drives, and communications products; the increasing proliferation of sound functionality in new products from new and existing competitors and at the application software, chip and operating system levels; reductions in the market value of products sold by Creative, including increases in inventory or declines in demand or prices for storage devices, digital entertainment appliances, board and chip-level products, software, speakers, and other products; reductions in revenues and gross margins due to numerous factors, including declines in average selling prices of Creative's products, failure to reduce costs, divestments of low margin businesses, and increased inventories and pricing pressure from competitors; the short product cycles that characterize most of Creative's products; fluctuations in the value and liquidity of Creative's investee companies, including any losses that may result from the recent trend of increased volatility for technology stocks and potential price reductions of carrying values of our investee companies; potential fluctuations in quarterly results due to the seasonality of Creative's business and the difficulty of projecting such fluctuations; the vulnerability of certain markets to current and future currency fluctuations, including the exchange rate of the Euro; labor shortages or work stoppages; credit shortages; effects of restricted fuel availability and rising costs of fuel; Creative's reliance on sole sources for many of its chips and other key components; component shortages which may impact Creative's ability to meet customer demand; Creative's ability to protect its proprietary rights; the timing or completion of a subsidiary IPO and/or the valuation that would apply in the event of a consummation of a subsidiary IPO; the volatility of share prices for companies in Creative's industry and the effect of those prices or other events beyond Creative's control, including adverse changes in general economic conditions; and other risk factors described in Creative's filings with the Securities and Exchange Commission over the past twelve months, including without limitation, Creative's Annual Report on Form 20-F and the Form 6-K dated January 19, 2001. Creative urges you to consider all such factors. Creative undertakes no obligation to publicly release the results of any revisions to such forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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