June 27 (Bloomberg) -- Creative Technology Ltd., whose MP3 music players compete with Apple Computer Inc.`s iPod, cut its fourth-quarter sales forecast and said it will have an operating loss on sagging demand. The shares fell 11 percent.

Sales for the period ending June 30 will be about $300 million, less than the previous forecast of as much as $360 million. Gross margin will be less than 20 percent, compared with a forecast of as much as 24 percent, the company said in a PR Newswire statement today.

The forecast is evidence that Singapore-based Creative Technology is having trouble going up against Apple and other music player manufacturers including Samsung Electronics Co. Demand for MP3 players is less than expected and prices are lower than anticipated, Creative said in a statement.

``There`s one real king of the hill and that`s Apple with the prestige product that`s been very hard to compete with,`` said Joe Phillips, an analyst at New York-based Redwood Technimentals who has a ``buy`` recommendation on the stock. ``We believe there is room for others, but it really takes another holiday season to make a judgment on the future of the sector.``

Phillips said the ``buy`` recommendation is under review. Neither Phillips nor Redwood holds shares in Creative Technology.

The shares fell 78 cents to $6.64 in Nasdaq Stock Market composite trading. They have fallen 56 percent this year.

Profit Slide

Fourth-quarter sales of $342 million were expected, the average of four analysts surveyed by Thomson Financial. The company had sales of $201.8 million a year-earlier. Profit of 8 cents a share was expected, according to the average of three estimates. The company didn`t provide a net income forecast or elaborate on the size of the operating loss.

Creative Technology on April 22 said third-quarter profit fell 72 percent to $15.9 million, or 18 cents a share, after the company cut prices and earned less on investments. Gross margin was 23 percent in the period.

Of 13 analysts with ratings on Creative shares, one recommends that investors buy the stock, 10 say investors should sell and the remaining two have a ``hold`` recommendation, according to Bloomberg data.

To contact the reporter on this story:

Rebecca Barr in New York at rbarr1@bloomberg.net

Last Updated: June 27, 2005 16:14 EDT