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Shares in Creative Technology plunged almost 10 per cent in Singapore on Tuesday after the digital audio device maker warned that lower-than-expected demand and prices for its key range of MP3 players would lead to an operating loss in the current quarter.

The bleak statement, issued late on Monday, cast doubts over the ambitious claims of chief executive Sim Wong Hoo, who has waged an aggressive verbal campaign against main rival Apple Computer and its iconic iPod.

“The Creative product [the Zen Micro] is not bad, but right now to compete with Apple you have to drop the prices and they are getting squeezed,” said Claudio Checchia, Singapore-based research manager at market analysts IDC.

Creative shares, which are also listed on Nasdaq, closed down at S$11.30, a two-year low and less than half their 52-week high of S$27.20.

The problems with its MP3 player strategy are likely to cast a pall over the company's push into digital music devices, a vital move to wean it off its prior dependence on components, principally computer sound cards.

They may also dent the commercial reputation of Mr Sim, widely regarded as one of the few genuine local entrepreneurs in Singapore, where many large businesses have been fostered by the state.

Creative said that in its fourth quarter to end-June, sales would climb 50 per cent to US$300m, sharply down on its previous forecast for growth of up to 80 per cent to US$360m.

It blamed softer-than-expected demand for its range of MP3 players, coupled with lower average selling prices. The guidance for gross margins was cut to less than 20 per cent from between 22 and 24 per cent. The size of the projected operating loss was not given. In the third quarter, Creative reported a profit of US$15.9m, down 72 per cent year-on-year.

Analysts said Apple's iPod retained a commanding share of the global MP3 player market, with about 60 per cent of sales, while second-placed Creative had about 20 per cent.

Mr Sim has attacked his rivals principally Apple as Creative has tried to carve out a larger share of an increasingly competitive sector.

“I declare war on the MP3 market!” said Mr Sim last November. “I want to out-invest and out-market everyone, because MP3 is all about audio and we are an audio company.”

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