Cost-cutting measures will include, among other things, a workforce reduction of approximately 10% worldwide, the closure of Creative’s Malvern, PA manufacturing location and consolidation of those manufacturing efforts to Creative’s Singapore facilities, and sharp cutbacks in selected non-revenue generating Internet initiatives. As a result of these measures, including those already taken in the quarter to date, the Company expects to take a one-time restructuring charge of approximately $15 to $20 million in the current fiscal quarter.
Additionally, given the recent steep downturn in global equity markets and the resulting valuation outlook for privately held technology holdings, the Company plans to take a write-down during the current quarter of approximately $65 million against its investment portfolio.
Although we are still targeting our guidance of $260 to $270 million for revenue and 27%-28% gross margins for the current quarter, we believe that we need to take more aggressive actions than originally planned, given the severity of the economic climate and prolonged difficulties in the system builder space, noted Craig McHugh, president of Creative Labs, Inc. We have cultivated a strong family of hard-working individuals at Creative, and letting people go who have made positive contributions here is very difficult. However, we have no current visibility that the economic climate will change in the near future and, as a result, need to aggressively cut costs.
