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Creative Technology, a maker of digital media players and a supplier of various audio equipment for personal computers (PCs), has reported a profitable quarter amid helpful sales of music players and a payment by Apple. But, it seems, that Creative’s business for which the company is known for – audio devices for PCs – seems to continue to drop.

Revenues for the second quarter of fiscal year 2007, ended December 31, 2006, were $424.4 million, which include a $100 million paid-up license from Apple for use of the Creative Zen patent in its products, which means that revenues that came from sales of products totaled $324.4 million during the quarter.

“We’re very pleased with the sales of our Zen V and Zen V Plus players in the holiday quarter. Overall, we sold a total of 2.5 million of our MP3 players in the period,” said Craig McHugh, president of Creative Labs.

While Creative Technology indicated that it was pleased with the sales of its own-brand Zen music players, some observers noted that audio cards – the product for which Creative Labs became known for in the nineties – now account for about 10% of the company’s sales. If average sales price of an audio card is $100, then Creative Labs ships about 324 thousand of audio cards per quarter, meaning that less than 1% of 57.15 million PCs sold per quarter include a discrete audio card by Creative Labs. However, a noticeable portion of advanced users still prefer SoundBlaster over competing options: according to a recent poll about 14% of gamers use an audio card by Creative Technology.

In fact, sales of music players are also not that high in relative numbers: Apple Computer said it shipped about 21.066 million iPod devices onto the market during the same period as Creative Labs. In the first half of 2006 Creative commanded  about 3.7% of the digital media players market, according to NPD market research agency and it should be kept in mind that one more massive rival for Creative – apart from Apple – are the cellular phones with integrated music players.

Apart from audio cards and portable digital media players the company also sells speaker systems, storage products, web-cameras, PC peripherals, headphones & headsets, mice & keyboards as well as other accessories.

“With the strong sales of our flash-based Zen players in the period, we achieved our goals of bringing gross margins above 20% and returning to profitability. These results are even before taking into account the revenue and profit contribution from the paid-up license from Apple for use of the Zen patent,” Mr. McHugh clarified.

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