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Ahead of the Bell: Creative/Apple

by editor2
August 25th, 2006

NEW YORK — Shares of Creative Technology Ltd., which makes MP3 players that compete with iPods, skyrocketed in pre-market trading Thursday after Apple Computer Inc. said it would pay $100 million to settle five patent disputes over MP3 technology.

Late Wednesday, Apple said it agreed to pay Singapore-based Creative $100 million to settle litigation over the technology used to navigate through songs on MP3 players. Creative Chief Executive Sim Wong Hoo said the company expects the payment to contribute 85 cents in earnings per share during the quarter ending Sept. 30.

Creative shares surged $1.97, or 32.8 percent, to $7.98 in pre-market trading on the INET electronic exchange Thursday, after closing Wednesday at $6.01 on the Nasdaq.

Apple shares also rose after the company settled a lingering headache for what Piper Jaffray analyst Gene Munster called a “drop in the bucket.” The stock rose 39 cents to $67.70 in pre-market trading after closing at $67.31 on the Nasdaq.

If the patent dispute had gone to court, Apple could have faced product injunctions and royalty payments on iPod sales, Munster said. Munster said the settlement represents only 1.1 percent of Apple’s more than $9 billion in cash.

“Apple got off really easy,” said Needham & Co. analyst Charles R. Wolf. “If Creative had won the case, Apple would probably have to pay them for each iPod it sold. It could have amounted to substantially far more than $100 million.”

Creative also agreed to make accessories for iPods, which Munster said is a subtle admission that Creative thinks it can gain more by cooperating with Apple than competing. Munster said the deal itself is not meaningful for Creative, but it represents a turning point in Creative’s thinking.

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