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Creative Technology Announces Second Quarter Fiscal 2001 Results

SINGAPORE - January 19, 2000 - 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 second quarter of fiscal year 2001, ended December 31, 2000. All financial results are stated in U.S. dollars.

Creative reported sales for the second quarter of $427 million, slightly above the company's revised second quarter revenue expectation of $410 to $420 million. This compares to sales of $436.8 million for the same quarter of the previous year.

Net income was $26.5 million and earnings per share were $0.33, compared to net income of $44.5 million and earnings per share of $0.52 for the same quarter last year. Second quarter fiscal 2001 net income includes investment gains of $0.5 million or approximately a half-cent per share, compared to gains of $9.2 million or eleven cents per share for the same quarter of the previous year.

Sales for the first six months of fiscal year 2001 were $731.4 million, compared to $705.9 million for the same period last year. Net income for the first six months of fiscal 2001 was $44.1 million or $0.53 per share, compared to net income of $55.3 million or $0.65 per share for the same period last year. Net income for the first six months of fiscal 2001 includes investment gains of $2.9 million or $0.03 per share. Net income for the first six months of fiscal 2000 includes gains of $13.6 million or $0.16 per share.

"During the quarter, we experienced a significant shortfall in demand and revenues from our system integration and OEM channels, which came in below our forecasts," said Craig McHugh, president of Creative Labs, Inc. "This caused us to announce revised expectations in December, as the slowdown of our sales into these channels negatively affected audio revenues, which impacted our gross margins.

"By contrast, we achieved strong results with our Personal Digital Entertainment (PDE) products, especially the NOMAD Jukebox. During the second quarter, revenues from PDE grew by 166% over the same quarter of the previous year, accounting for more than 10% of total sales. The PDE category is key to our strategic direction and has enjoyed success, independent of new PC system sales, as it targets the installed base of consumer PC users and the retail market, where we saw very strong performance during the quarter."

"The NOMAD Jukebox was the hot product on a lot of holiday wish lists," said Sim Wong Hoo, Chairman and CEO. "As we announced earlier this week, we have now shipped 100,000 units. The reception at the CES show in Las Vegas for both the current NOMAD Jukebox and the future direction of the product line was outstanding, and Creative has clearly positioned itself not only as the innovator, but as the leader in digital audio. We intend to focus our vast worldwide engineering and marketing resources on the digital jukebox market. Even with the downturn in the PC market, our PDE strategy and the NOMAD Jukebox have positioned the company for a bright future."

During the quarter, Creative continued its share buy-back program, repurchasing approximately 240,000 shares at a cost of $3.9 million. Subject to market price and conditions, and securities law restrictions, the company plans to continue its buyback program during fiscal year 2001.

Strategic Investment Fund - Investee Companies
During the second quarter, Creative scaled back new investments in its strategic investment fund to approximately $10 million, with the majority of this amount going to additional investments in its existing investee companies.

Awards and Recent Highlights

  • Worldwide rave reviews of the NOMAD® Jukebox continued to flow in, as seen in Fortune, Asiaweek, PC World, T3, Cigar Aficionado and Details, among others. It won the Product of the Year award from etown.com. It topped CNET's list of Top Ten Tested MP3 Portables for Xmas and Fortune listed it among its Hot Tech Toys and Tools of 2000. Fortune also named MP3 players one of the 'Best Technologies for 2001' in a year-end issue, and the NOMAD Jukebox was heralded as one of the devices leading the revolution, garnering a front cover placement. It was also the 'Editor's Choice' in Taiwan's Computer DIY and was named 'Best Innovation Product' in Thailand's Windows Magazine.
  • NOMAD II MG, Cambridge Soundworks DeskTop Theater? 5.1 DTT3500 and Sound Blaster® Live!? Platinum 5.1 were among the Top 100 Products of 2000 in Computer Shopper. Sound Blaster Live! Platinum 5.1 also received an 'Overall Best Buy' award from Australian PC World.
  • Creative subsidiary Cambridge SoundWorks®, a multi-channel audio and video manufacturer and retailer, launched the PlayDock? PD200, a compact, transportable amplified speaker for the NOMAD Jukebox.
  • Cambridge SoundWorks also launched its Newton Series?, a new line of high-performance speakers that combine superb sound with sleek styling and are more affordable than comparable models.
  • Cambridge Soundworks DeskTop Theater 5.1 DTT3500 won an Editor's Choice award from CNET.
  • 3D Blaster® Annihilator? 2 Ultra garnered an Editor's Choice award in PC Gamer and CNET Gamecenter, and a KickAss Product award from Maximum PC.
  • Video Blaster® MovieMaker won a "Best Hidden Treasures of Fall Internet World" award from CNET.

Listen to Creative's Q2 FY01 Analyst Conference Call:
Creative's Investor Relations Web site: https://www.creative.com/investor/
Link to Q2 earnings announcement call live on Web site at 4:00 p.m. PST 01/19/01
Replay available from shortly after end of conference call on 01/19/01 until 1/26/01 at 6:00 PM
Conference call replay number 1-800-633-8284 or 1-858-812-6440, reservation #17675518

Balance Sheets & Statements of Income

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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.

Sound Blaster and Blaster, the Creative logo, 3D Blaster and Video Blaster are registered trademarks, and Annihilator and Play Dock are trademarks of Creative Technology Ltd. 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. Cambridge SoundWorks is a registered trademark and Desk Top Theater is a trademark of Cambridge SoundWorks, Inc. in the United States and/or other countries. All other products mentioned herein are trademarks or registered trademarks of their respective owners 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 the accompanying conference call, the matters set forth in this press release and the call (including all references to future financial performance, products and marketing efforts) 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 and the call. 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 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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