Apple payment makes up 90 per cent of Creative profit

Struggling digital audio firm Creative Technology has vowed to cut costs after revealing that almost 90 per cent of its profits for the past quarter came from rival Apple in the form of a one-off patent licence payment. 

The windfall provides a temporary respite for Creative, which has suffered increasing competition in its core business.

The Singapore-based company has already laid off some 300 staff, about six per cent of its global roster, from US and European units, and plans to cut costs further, according to company president Craig McHugh.

Apple agreed the $100m payment in August 2006 after a legal battle with Creative over technology used in the iPod range.

Although Apple did not concede that it had infringed on Creative's patents, the Singapore firm is attempting to use this settlement to extract licensing payments from other audio player and mobile phone makers, according to analysts at Kim Eng Securities in Singapore. 

After costs and taxes, the Apple payment added an $82m bonanza to Creative's net income for the quarter ended 31 December 2006, the company announced today.

From its core business, the company reported net income of just $9.9m on sales of $424.4m for the traditionally strong Christmas holiday season.

Creative makes almost 70 per cent of its revenue from 'personal digital entertainment' products, a category which consists mainly of its Zen and Muvo digital audio and video players.

McHugh claimed that Creative sold 2.5 million MP3 players during the holiday period.

However, these players have had increasing difficulty sustaining a comfortable market niche between cheap unbranded MP3 players from Asian manufacturers, and Apple's more expensive iPod players which benefit from their tie-in to iTunes.