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Although Creative expected to see some margin pressure in the storage segment of its business, the downturn in OEM and system integrator demand caused further margin pressure. The company expects this to impact gross margins by approximately two points. However, Creative expects to come close to its original guidance for net operating margin of approximately 10 percent before operating expenses related to its Internet initiatives.

``Although we were impacted by the downturn in system builder demand, our retail businesses, including Personal Digital Entertainment products, are performing solidly,'' said Craig McHugh, President of Creative Labs. ``The drop in OEM and system integrator demand will slow our plan to reduce inventories, but I'd like to reiterate what I said in our last earnings conference call -- the majority of our inventories are in those product segments with long lifecycles and low risk.''

Final revenue, gross margin, and net operating margin will not be available until Creative reports its second quarter results.

About Creative

Creative is the worldwide leader in digital entertainment products for the personal computer and the Internet. Famous for its Sound Blaster® sound card and for launching the multimedia revolution, Creative is now driving digital entertainment on the PC platform with products like its highly acclaimed NOMAD® Jukebox. The company's innovative hardware, proprietary technology, applications and services leverage the Internet, enabling consumers to experience high-quality digital entertainment -- anytime, anywhere.

NOTE: Sound Blaster, Blaster and NOMAD Jukebox are registered trademarks of Creative Technology Ltd. All other products mentioned herein are 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 herein, the matters set forth herein (including any 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 are cautioned not to place undue emphasis or reliance on these forward-looking statements which reflect management's analysis, judgment, belief or expectation only as of the date hereof. 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, graphics accelerator, CD-ROM and DVD drives, communications and personal digital entertainment appliances, including the WebCam line of products and specifically, the NOMAD and NOMAD Jukebox line of products; reductions in the market value of products sold by Creative, including increases in inventory or declines in demand or prices for optical storage devices, board and chip-level products, software, speakers, digital entertainment appliances, and other products; the short product cycles that characterize most of Creative's products; potential 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; the increasing proliferation of sound functionality in new products from new and existing competitors and at the application software, chip and operating system levels; 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; 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. 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.

SOURCE: Creative Technology Ltd.