Creative Technology F2Q07 (Qtr End 12/31/06) Earnings Call Transcript

Jan.30.07 | About: Creative Technology (CREAF)
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Creative Technology Ltd. (OTCPK:CREAF)

F2Q07 Earnings Call

January 30, 2007 7:00 pm ET

Executives

Phil O’Shaughnessy - Senior Director of Corporate Communications

Craig McHugh - President of Creative Labs

Sim Wong Hoo - Chairman of the Board, Chief Executive Officer

Ng Keh Long - Chief Financial Officer, Secretary

Analysts

Keng Hock Lim - Credit Suisse

Horng Han Low - Citigroup Research

Presentation

Operator

Good afternoon. My name is Matthew and I will be your conference operator today. At this time, I would like to welcome everyone to Creative Technology's second quarter fiscal year 2007 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session.

(Operator Instructions)

I will now turn the call over to Mr. Phil O’Shaughnessy, Senior Director of Corporate Communications. Sir, you may begin your conference.

Phil O’Shaughnessy

Thank you. Good morning to those of you joining us in Singapore, and good afternoon and evening to everyone in the U.S. Thank you for joining us today. I’m Phil O’Shaughnessy, Creative’s Senior Director of Corporate Communications, and I would like to welcome you to Creative Technology's second quarter fiscal year 2007 earnings release conference call.

The press release can be downloaded from our website, which is creative.com. We are also offering a webcast of today’s call which you can access through the investor relations page on creative.com.

Today’s call will be hosted by Craig McHugh, President of Creative Labs. Craig will be joined on the call by Sim Wong Hoo, Creative’s Chairman and Chief Executive Officer, and Ng Keh Long, our Chief Financial Officer.

During our call today, Craig and the other participants who may be speaking on the call will, with the exception of historical information, be making forward-looking statements, including statements relating to gross margins, operating expenses, restructuring costs, profitability, and the market potential for our products. These forward-looking statements are based on the information that is available to us as of today, and reflect management’s current analysis, belief, or expectations. Actual results could materially differ for a number of reasons, including those detailed in today’s press release and in our filings with the Securities and Exchange Commission over the last 12 months.

You’re urged to review the risk factors set forth in our press release and in our SEC filings, including our annual report on Form 20-F. Also, please note that Creative undertakes no obligation to update any forward-looking statement made in today’s conference call or in our press release to reflect events or circumstances that occur after today.

For today’s call, all results are stated in U.S. dollars.

We will begin today with Craig McHugh providing a review of the results of the second quarter of our 2007 fiscal year. We will then open up the call for questions and answers.

At this time, I would like to turn the call over to Craig McHugh, President of Creative Labs. Craig.

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Craig McHugh

Thank you, Phil. Revenues for the second quarter were $424 million, compared to revenues of $391 million for the same quarter last year. The revenues for the second quarter include licensing revenue of $100 million from the paid-up license from Apple for use of the Creative Zen patent in their products.

The paid-up license from Apple contributed $82 million to net income, and EPS of $0.98 in the second quarter. Including this contribution, net income for the second quarter was $92.1 million, with EPS of $1.10. This compares to net income of $8.2 million, with EPS of $0.10 for the same period last year, including an investment gain of $6.9 million.

For comparative purposes, excluding the contribution from the licensing revenue and investment gain, net income for the second quarter was $9.9 million, with an EPS of $0.12, compared to net income of $1.3 million and EPS of $0.02 for the same period last year, excluding the investment gain.

We achieved our goal of returning to profitability in the quarter, even before the contribution to income from our licensing revenue.

Let’s take a look at the second quarter results in more detail. For comparative purposes, the operating results, percentages and comparisons we will be discussing will exclude the licensing revenue in the second quarter.

It seems we are having a difficulty with the phone line at this side.

Okay, thank you. Sales for our personal digital entertainment, or PDE category, which includes our MP3 players and web cameras, contributed 68% of total sales in the period. This compares to 70% of revenues last quarter and 67% of revenues for PDE in the same quarter of last year.

During the second quarter, we sold a total of 2.5 million of our MP3 players. During the quarter, we were able to take advantage of a lower market price for Flash memory, reducing the cost of our Flash-based players and contributing to our higher gross margins of 22% in the period.

Our team has been focused over the past few quarters on improving our procurement processes and supply chain management. The improvements we have made thus far helped us to take advantage of the lower market prices for memory in the second quarter.

In addition to helping us to increase our gross margins for our Flash-based players, improvements we have made to our supply chain, combined with the large volume of Flash memory we are consuming, has helped us to strengthen our relationships with our key memory suppliers.

We believe we are now better positioned to be able to secure the supply of Flash memory we need at very competitive prices.

We also believe that the current market outlook for memory prices to remain at a low level benefits us, as we push to increase our unit volume.

Our audio category contributed 10% of sales for the period, consistent with 10% of sales last quarter and compared to 13% for the same quarter last year. Revenues were down year over year as sales of our Sound Blaster X-Fi audio boards for the PC slipped, and sales for our new external Xmod did not ramp as fast as we had wished.

Although we were disappointed by the performance of our audio business, we believe we are gaining market acceptance for our extreme fidelity standard and external X-Fi audio enhancement solutions. This acceptance is a key element toward our goal of improving our performance in the audio category and returning to revenue growth.

Another key element is successfully moving extreme fidelity out of the PC space and into the MP3 and consumer electronics market. We made significant progress in that regard with the introduction of our latest and most important extreme fidelity solution: the X-dock wireless, which we launched earlier this month at the Consumer Electronics show in Las Vegas, and at the MacWorld show in San Francisco.

The Xdock Wireless will come in two versions: one for the Apple iPod and one for the Zen Vision M. The Xdock Wireless docks your iPod or Zen Vision M and connects to your home entertainment system or speaker system. The Xdock Wireless up-converts the music from your player in real time to a quality level beyond CD quality, to 24-bit extreme fidelity -- a dramatic improvement over the sound of MP3 music.

In addition to playing music through your home entertainment system, it wirelessly broadcasts the music throughout your home to X-Fi wireless receivers, playing the music from your player in extreme fidelity.

The Xdock Wireless is simple to use and takes just a few minutes to set up. It does not require you have a wireless network, and you can broadcast to as many X-Fi wireless receivers as you want in your home.

We designed the Xdock Wireless to allow you to enjoy the incredible sound of extreme fidelity from your iPod or Zen, and to provide a simple to use, high-quality wireless music distribution system.

The Xdock Wireless is priced at just $199, and the X-Fi wireless receivers are only $99 each, far below some of the other wireless solutions that do not have extreme fidelity. The quality of the music playback in extreme fidelity is so good and the installation so easy that the Senior Vice President of Apple supported our launch at MacWorld with a quote in our press announcement. I’d like to share that quote with you now: “We’re thrilled that Creative is joining the iPod ecosystem with the launch of the Xdock Wireless”, said Philip Schiller, Apple’s Senior Vice President of Worldwide product marketing. Mr. Schiller continued: “Just place your iPod in the X-dock and easily play music wirelessly in any room with the great sound quality of extreme fidelity.”

The Xdock Wireless has been certified by the Made for iPod program, giving us our first extreme fidelity solution we can market to the huge base of iPod users.

A Best of CES award was given by Laptop Magazine to the Xdock Wireless in the portable audio accessories category. The Laptop award recognizes products in CES that embody innovation and inspiration, and represent exciting advances in technology.

Our speaker business contributed 14% of revenues in the second quarter, compared to 13% of revenue for the same period last year, and 13% of revenues last quarter. Revenues from all other products accounted for 8% of total sales for the period.

Looking at the breakdown of revenues by specific geographic regions, the Americas represented 34% of total sales, compared to 37% for the same period last year, and of 47% for the last quarter. Europe contributed 51% of total sales, compared to 48% for the same period last year and 38% last quarter. Asia contributed 15% of revenues, consistent with 15% last quarter and 15% for the same period last year.

Our gross margin for the second quarter improved to 22%, compared to 15% last quarter. The increased gross margins were primarily a result of improved margins in our Flash based MP3 players.

Operating expenses for the period came in at $67 million. This compares to $78 million for the same period last year and $58 million for the previous quarter.

In today’s press release, we noted some of the steps we are taking, among others, to drive down our operating costs and our product costs. Our actions in the current quarter include outsourcing our European assembly and distribution operations, with a planned headcount reduction of 200 employees, and a scaling down or closure of some of our smaller, unprofitable business units in the U.S., with a headcount reduction of approximately 100 employees.

As a result of these actions, we incurred approximately $4.4 million in restructuring costs in the second quarter. With our continuing efforts to reduce operating costs, we expect to incur additional restructuring costs in the current third quarter.

We are targeting to bring operating expenses in line with our revenues and gross margins so we can achieve sustained profitability moving forward.

Moving on to the balance sheet, we ended the quarter with $234 million in cash, compared to $190 million last quarter and $200 million for the same quarter last year. Our net inventory level for the second quarter was $201 million, which represents a 25% reduction from $260 million last quarter and a 33%, or $100 million reduction from our inventory level of $301 million for the same period last year.

Day sales outstanding at the end of the second quarter were 53 days, compared to 62 days last quarter and 47 days for the same period last year.

Now, looking forward, key areas of our focus include: one, targeting unit volume increases of our Flash based MP3 players, taking advantage of the very low market price of Flash memory; two, reducing our operating expenses to bring them in line with our revenue and targeted gross margins; three, further improvement on our supply chain and procurement processes; four, pursuing licensing opportunities with those companies currently using the Zen patent, or that wish to use the Zen patent, including MP3 player manufacturers and cell phone manufacturers that make MP3-enabled phones; and extending and expanding our audio business from the PC space to the larger consumer electronics and MP3 markets, targeting the iPod user base.

As mentioned earlier, with our efforts to reduce operating expenses, we expect to incur restructuring costs in the current quarter that may impact our results. We are otherwise targeting to be about break-even for the period before special charges.

With the strong demand we see for our Zen MP3 players, and with the very low price of Flash memory, we are targeting gross margins above 20%, and we expect to be profitable for each of the following quarters in the 2000 [sic] calendar year, excluding restructuring charges, if any.

At this time, I would like to open up the call for questions and answers. Operator, please.

Question-and-Answer Session

Operator

(Operator Instructions)

We do have a question from Keng Hock Lim with Credit Suisse.

Keng Hock Lim - Credit Suisse

Maybe I could just start off with a couple of questions on the earnings first. There was a $6.9 million positive item under the lines of others in the P&L. Just wondering where that came from. Maybe you could explain that particular line for us.

Ng Keh Long

This is mainly from exchange gains.

Keng Hock Lim - Credit Suisse

Exchange gains. All right.

Ng Keh Long

Yes, currency.

Keng Hock Lim - Credit Suisse

Yes, okay. There seems to be also a sharp drop in accounts payable. Was that deliberate?

Craig McHugh

They dropped substantially year over year on our accounts payable. Keh Long, would you like to -- let me go ahead and take that. As you noticed, our inventory levels, we dropped our inventory levels significantly, 33% year over year. And I mentioned that we’ve significantly improved our supply chain management and our procurement processes, so we reduced our purchases in line with our expectations going forward. So the lower accounts payable reflects our lower purchases and our lower inventory levels.

Keng Hock Lim - Credit Suisse

Okay, the other questions I have are actually on the operations. You have actually outsourced the European side of the manufacturing concern. I was just wondering, what kind of cost savings could we expect from that particular move?

Separately, you also earlier mentioned about potentially outsourcing or spinning out the manufacturing operations at Cubic. Just wondering whether there is any update on that front.

Craig McHugh

Let me divide that question into elements. The first one is with regard to our steps in Europe. Historically, over the past 10 years, all of our packaging, final product assembly for our European revenues have gone through our facility in Dublin, where we did packaging, they support all the different languages throughout Europe. We’ve now moved the packaging back to our manufacturing facilities, either our direct facilities or a subcontractor’s, in Asia and we’re shipping directly to an outsource warehouse in Europe itself. We believe we have the opportunity to reduce our local costs substantially.

Going forward, there are two elements of cost reductions. One is the area for our local costs, which will be reflected in the improved gross margins, and the other is in the area of reduced operating costs. We’ll have improvements in both areas because of the changes in Europe.

Right now, we’re not breaking out specific guidance for what the improvements would be, but we do believe we’ll be able to achieve a significant savings in cost reductions for our European business as we move away from our own facility. That will take place over the next two quarters.

The other item is an update within our facility. We currently are still planning to sell the facility, as we noted last quarter, to a management led group. We have not completed that transaction but we are still planning on being able to do so in the very near future.

Keng Hock Lim - Credit Suisse

Okay, thank you so much.

Operator

(Operator Instructions)

Gentlemen, at this time, there are no further questions.

Craig McHugh

Okay. Well, that’s a first for us, only a single question. We’ll give it one more moment, as we have a large number of callers on. Perhaps the early hour in Singapore is impacting the number of calls. We’ll give it one more minute; otherwise, we’ll wrap up the call.

Operator

We do have one follow-up from Keng Hock Lim with Credit Suisse.

Keng Hock Lim - Credit Suisse

Okay, just regarding the recent launch of the Xmod, as well as Xdock, are you able to share a bit on how the reception has been?

Craig McHugh

Yes, with regard to the Xmod, as noted in my comments today, we’ve been disappointed that the ramp up wasn’t as quick as we wished. The Xmod primarily is designed to support a PC or a Mac, hence my comments that we’re not getting traction as rapid as we’d like in that space.

The Xdock is a different platform. It’s still our extreme fidelity, but it’s designed to support the iPod and the Zen Vision M, so we’re moving outside the PC space, where we had significant enhancement and where we believe we’d be able to get much more rapid adoption.

So there’s two separate focuses, and my comments are I think right now, the audio business, while we had a negative trend year over year, were a result of the downward demand we saw in the PC space, and we’re very optimistic about the opportunities outside, especially in the MP3 and the iPod space.

Keng Hock Lim - Credit Suisse

Okay, and the other one is really on the next step, which is basically X-Fi and better MP3 players. Could we expect something like that on the market this year?

Craig McHugh

For our plans, we believe today the current thrust will be being able to have extreme fidelity through our docking stations. We don’t want to break out the MP3 roadmap at this time for the future, but as we shared in the past, our goal would be able to have extreme fidelity in our own MP3 players, our Zen family, as well as other MP3 players in the market.

We believe our goal is to get the extreme fidelity everywhere, and a first key step is with the Xdock and the next step, Keng Hock, is with the players themselves.

Keng Hock Lim - Credit Suisse

Do you have any idea of the time line that we’re looking at? Of course, the other question is in terms of form factor designs. It’s been a while since we saw a new form factor coming out for your MP3 player. I’m just wondering whether there are plans to actually refresh the design of the product.

Craig McHugh

We didn’t discuss it today, but at the Consumer Electronics show, we previewed to our largest retail partners and key marketing partners around the world a glimpse of our future roadmap. There was a lot of excitement around where we’re going. I think you’ll see new players from us in the first-half of this year that will drive our unit volume, and that’s why I shared today that one of our strategic goals is to be able to increase our volume of Flash based players, taking advantage of low market price.

So we’re actually very excited about where we’re going with the new product line. But at the same time, our Zen V Plus and our Zen Vision M are doing exceptionally well in the market. As we shared with you, 2.5 million players. Clearly we’re the number two provide of MP3 players worldwide, and the demand of the 2.5 million players, especially with the entrance into the marketplace this year, I think it shows how strong we are. So we’re going to continue those players and we’re going to add new players that we believe that increase our unit volume.

Sim Wong Hoo

Let me add something. I think for the X-Fi, the first phase is the move into the docking station, which we see a [future possibility] of an already existing market. We don’t have to convince these people that they need to bring their MP3 players. If they’ve got MP3 players, they would want to have some docking somehow right now, so for that market, it’s a good market for us.

To get into MP3 players would become the next step, because needless to say, any MP3 players and X-Fi [like that], so I think we’re not in a hurry to do that, although it would be a good differentiator going forward for us.

Then, we are also looking at putting them into headphones. There’s another possibility which I think for X-Fi is potentially the licensing, which I think we have stepped up our licensing program. We’re talking to quite a number of more people out there, and a lot of people are very excited about what X-Fi can deliver in the consumer electronic devices, which actually itself could be very big.

Keng Hock Lim - Credit Suisse

Could we just check -- I mean, right now, technologically and in terms of manufacturing, are we able to incorporate X-Fi into the MP3 player without impacting the size or the design?

Sim Wong Hoo

Theoretically, yes, but it would consume more current, and then the battery life would be affected or you would put more battery in and it would become thicker, and things like that. We can do it with [inaudible].

Keng Hock Lim - Credit Suisse

So there is still a bit of technological issues to basically iron out first, before that can happen?

Sim Wong Hoo

It’s not a technological issue. It’s just when we are going to do the launch. We’re going to wait for the right time.

Keng Hock Lim - Credit Suisse

Okay, and separately, on your licensing, both for X-Fi as well as for [the Zen], I’m just wondering, could we expect anymore updates on that front this year?

Craig McHugh

We can’t comment on the future, Keng Hock, but we broke it out as one of our strategic initiatives, because we do believe there’s licensing opportunities, and that would be the horizon and timeframe where we believe we’d be able to have additional licensing revenues.

Keng Hock Lim - Credit Suisse

One last question, it’s basically on the sales from Europe. Maybe you could refresh me what it actually dropped so much last quarter and what accounted for the recovery again this particular quarter?

Craig McHugh

Your question threw me for a moment, because last quarter was very strong in Europe. They contributed a significant percentage of overall revenues. You’re mentioning the previous quarter?

Keng Hock Lim - Credit Suisse

Correct, yes.

Craig McHugh

Okay, so last quarter’s very strong. Historically, Europe has been seasonal and has had a very large holiday period. That’s primarily because in the previous quarter, they’re just coming back from their long summer vacations. July and August is very, very slow for us in Europe, and we have a large September.

So if you look at our historical trends, typically their first fiscal quarter is very light and they have a very, very strong second quarter, which is the case again this year. So their comparatives, there’s a sharp increase in the percentage of revenues sequentially from Q1 to Q2, but the seasonal high is consistent with what we saw last year as well as previous years.

Keng Hock Lim - Credit Suisse

I think separately, you have not given your sales guidance for the current quarter, but could we expect the same kind of seasonality that we usually see, basically the post-Christmas pull-back?

Craig McHugh

Again, we don’t share specific guidance on revenues, but I think the comments that we made today is that we’re seeing strong demand for our Zen V Plus and Zen Vision M in the marketplace. But our business, particularly in Europe, as I just noted, is seasonal. Europe’s biggest quarter is fiscal second quarter, and then they drop off in this quarter, so that will impact the overall volume, so there will the seasonality.

Keng Hock Lim - Credit Suisse

Okay. Thank you, Craig. That’s all the questions I have for now.

Craig McHugh

Thank you very much.

Operator

(Operator Instructions)

Our next question comes from Horng Han Low with Citigroup Research.

Horng Han Low - Citigroup Research

Good morning, everyone. My first question is basically on your profitability. If I were to look at your guidance, I mean, you’re looking at profitability for the next few quarters, despite periods of seasonally slower sales. Is the improvement driven mainly by product mix improvement for more NAND Flash higher margin product mix? Or is it largely driven by further cost cutting, which I believe you are only mid-way through?

Craig McHugh

I think each of those elements will contribute to our success and our target of sustained profitability going forward. As I noted, we are going to continue our cost-cutting measures. We took significant steps over the last two quarters to improve our operations, improve our product costs and reduce our operating expense.

Our comments today with regard to our plans for the current quarter do include an expectation we’ll have further restructuring costs in the current quarter, so one contribution to our profitability will be reduced operating expenses.

Another key element is the improved margins that we’ve seen with our Flash-based MP3 players. We started the quarter with very low Flash memory prices. Since then, the price for memory has continued to move down.

Our expectation moving forward, based on the abundant supply of memory in the market is that the memory prices will stay low, which says two things for us. It allows us to be able to achieve strong margins, or stronger margins than we have historically seen in the MP3 business for our Flash-based players. It allows us to be able to increase our unit volume, both as far as the demand we’re seeing at the current market price points, as well as our desire to push additional product because we’re achieving very good margins.

The improvements we’ve made in our procurement processes and what we’ve done in supply chain enable us to take advantage of these low prices, significantly improve our competitive position against the other MP3 players in the market, and we believe give us a market position that we’ve never enjoyed before. We’re able to be able to produce our Flash-based MP3 players at or below the costs of the other players in the market. So we’re very excited about that opportunity.

So the improved margins, and I think the potential for unit volume gains in Flash-based MP3 business is a key contributor to our plans for sustainability.

And what we see, the going-forward opportunity’s in audio. Although we were disappointed in the poor performance of our audio revenues in the holiday period, based on I think the slippage we’ve seen in our board sales, I think the opportunity for Xdock, as Sim mentioned, for us is truly outstanding.

Being able to market that product to the tens of millions of iPod users gives us a wonderful market opportunity we’ve never enjoyed before. Based on the just tremendous reaction/response to the product at CES, both by the consumers, the retailers and the reviewers, I think we have a wonderful opportunity to bring our audio business back to growth.

As we’ve shared in the past, our audio business is one of our highest margin businesses, so as we turn that business to growth, that bodes well for our overall gross margins and our ability to sustain profitability.

So there are multiple elements, of which operating cost reductions are just one.

The final comment I would make is the things we’re doing as far as outsourcing our distribution operations in Europe. We mentioned last quarter being able to sell our large facility in Malaysia, are ways for us not just to improve our product costs but also to improve our efficiencies in distribution, reducing our freight and shipping costs, improving our logistics costs, and at the same time, we believe it will reduce our working capital requirements, again providing additional ways for us to focus on profitability.

So it’s multi-element. I think we are very excited about the opportunity, so it’s not just operating cost reductions.

Horng Han Low - Citigroup Research

Okay, for the operating cost reduction, roughly, do we expect that to conclude within one quarter or maybe another two or three more quarters to go?

Craig McHugh

We do expect to take some restructuring charges potentially this quarter, but our operating costs reductions we feel may be ongoing past this quarter, because we’re doing it in a very methodical fashion. We’re focusing on those parts of our business that are under-performing.

As I commented today, we either cut back, scale back, or close some of our unprofitable smaller operations in the U.S. So those may be ongoing as we really focus on the higher growth areas.

I mentioned today that there may be potentially restructuring charges in future quarters as we continue to improve our operations worldwide, reduce our costs and reduce our product costs.

Horng Han Low - Citigroup Research

All right. My last question is regarding the Made for Apple iPod program. Can you just give us a sense, what is the percentage of revenue that Creative generated from this program in the December quarter?

Craig McHugh

It was basically zero. We just introduced our first products at CES, and those will be hitting the market this quarter.

Horng Han Low - Citigroup Research

Okay. Thank you very much.

Craig McHugh

Thank you for your question.

Operator

We have another follow-up from Keng Hock Lim with Credit Suisse.

Keng Hock Lim - Credit Suisse

Just a question on inventory. You have brought it down to $200 million, and that is quite good. I’m just wondering whether there’s actually room to bring that down even further.

Craig McHugh

Keng Hock, as we move to outsource our operations in Europe, and as we complete the sale of our facility in Malaysia, we believe there’s opportunities to further reduce our inventories. As we mentioned, that will reduce our working capital requirements.

I think with our current mode of operations, the $200 million is a very good level. It allows us to meet our upside requirements, but at the same time take advantage of lower market prices for Flash. As you can see, that contributed to our success last quarter.

So as we evolve our operations, there are clearly chances to further reduce our inventories.

Keng Hock Lim - Credit Suisse

Okay. The other portion is basically on the streamlining of the product portfolio. I’m just wondering, because you mentioned that some of the less profitable business has been dropped out. I’m just wondering, what are those? Going forward, where are the other areas where you see potential to streamline?

Craig McHugh

In the U.S., some of the steps we took, when we acquired Cambridge Sound Works about six years ago, they had a retail store operation, with stores throughout the U.S., but primarily on the east coast and west coast.

We scaled back those retail stores, where we closed the unprofitable stores. We kept the key flagships stores and the two stores that we felt could be profitable and continue to help us drive the Cambridge brand name. Those are on the east coast. So that was one of the key operations that we cut back on.

The other area of that is we cut back significantly on our musical instruments, or our high-end music solutions business, as under E-MU. We’re continuing the business going, but we cut back on the unprofitable products in the period.

Keng Hock Lim - Credit Suisse

The last question is on 3D Labs. There were talks earlier on about spinning that out. I’m just wondering; what is the progress there?

Craig McHugh

We’re continuing to evaluate options for the final steps that we’ll take with 3D Labs. As we shared earlier, our current plans are to separate that out. Currently we’re operating it as a separate unit, because they have a much different structure and a different set of opportunities.

But on the financial structure, we’re looking at those options right now.

Keng Hock Lim - Credit Suisse

Okay. Thank you so much.

Craig McHugh

Thank you very much. We appreciate that. Operator, I think that concludes our call. On behalf of Creative Technology and all our employees worldwide, thank you very much for joining us today and have a good day and a good night in the U.S. Thank you very much. Good night.

Operator

This concludes Creative Technology's second quarter fiscal year 2007 earnings conference call. We thank you for your participation. You may now disconnect.

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