Singapore-based Creative Technology Ltd., the maker of Nomad and Zen MP3 players, said on Thursday that an agreement with Apple Computer Inc. to make accessories for the iPod would boost its sales from the October-December quarter.
It gives Creative a dramatically larger market than what we have today -- we see the combined Zen and iPod markets as a huge revenue opportunity, Craig McHugh, the president of Creative Labs Inc., the company's U.S. unit, told Reuters in an interview.
We expect to see new sales into this market contributing to the (October-December) quarter.
Creative shares surged as much as 38 percent to an over six-month high of S$13.20 after Apple said it would pay $100 million to the Singapore firm to settle all patent litigation over the iPod player. The stock closed up 18.8 percent at S$11.40 on Thursday.
The agreement gives Apple a license to use a Creative patent in its music player and other products, and settles all legal disputes between the two companies.
McHugh estimates that Creative would be able to target about 50 million iPod users worldwide, in addition to over 15 million of its own Zen users, under Apple's Made for iPod program.
The company would design its travel speakers, headphones and earphones to work with the iconic iPod music player. It would also offer its new high-end computer sound card product, the Sound Blaster X-Fi, which enhances PC audio for music and gaming, to iPod users.
You will see continued market expansion for Creative, he added.
McHugh said Creative was open to exploring solutions with other firms using the Zen patent, or who would like to use it, but declined to comment on potential future licensees.
He added he was aware of some MP3 players and cellphones in the U.S. market using the Zen patent, but did not have specifics.
If we are unable to reach an amiable solution with companies using our Zen patent, we will take the necessary steps to protect our intellectual property, he added.
Creative said in a statement that it expected the one-time licensing payment of $100 million to contribute about 85 cents to its earnings per share for the quarter ending September 30.
Analysts said they were raising their sales and revenue forecasts for Creative on the back of the windfall.
We now expect Creative to report a full-year net profit of $99.4 million instead of $600,000 in losses due to the one-off gain, said Jonathan Ng, analyst with CIMB-GK Securities.
Ng added he was raising his estimates for the financial years ending June 2008 and 2009 by 50-55 percent to factor in the interest income from the $100 million gain.
McHugh declined to forecast if the windfall would help the company return to the black earlier, and reiterated the company's guidance of returning to profit by the end of calendar year 2006.
Earlier this month, Creative posted a net loss of $12.7 million, or 15 cents per diluted share, for the three months ended June, its fiscal fourth quarter, including a $10 million tax credit.
This compared with a net loss of $31.9 million, or 38 cents per share, a year earlier, which included a $9.3 million investment gain.
Apple has more than 70 percent of the U.S. market for digital music players. Besides Apple, Creative competes with Samsung Electronics, which makes the Yepp player, Japan's Sony Corp. and South Korea's Reigncom Ltd., maker of iRiver players.