Six months ago, Creative Technologies boss Sim Wong Hoo seemed ready for a showdown with Apple, saying his company was focused on making the best technology and was confident it would prevail in the battle between the portable MP3 player makers.

For now, Creative, the maker of MuVo and Zen portable MP3 players, is on the receiving end of a whupping in that fight.

The Singapore-based company reported its worst-ever quarterly loss today, citing a drop in memory prices and costs to reorganize a unit. For the period ended March 31, Creative posted a loss of $114.33 million, a huge dropoff from a profit of $15.91 million in the same quarter a year ago. Analysts had forecast a loss of $90 million, according to a survey from Thomson Financial.

The company's revenue also took a hit, shrinking by a third from $338.8 million last year to $225.7 million in the current quarter. Sales of Creative's music players fell 51 percent in the third quarter from the second quarter.

As Creative has stumbled, iPod sales have continued to surge. Apple sold 8.5 million iPods in the most recent quarter, bringing its total to 50.8 million since introducing the device in October 2001.

The news sent the company's shares down more than 8 percent in afternoon trading to $5.81.

In announcing the results, Craig McHugh, president of Creative's US biz unit Creative Labs, largely blamed the company's woes on a drop in flash-memory prices, the same reason the company cited last month when it warned of the quarterly loss.

"There was a drop in flash memory prices in the quarter, with a precipitous drop in prices at the end of the quarter," he said. "This had a significant adverse effect on our sales in the quarter, and resulted in lower revenues, lower gross margins and inventory write-downs in the period."

Analysts said the falling prices of the flash memory chips used in many digital music players meant customers were delaying purchases as they waited for better prices. But although the drop in flash memory prices affected all device makers, Apple was able to handle the drop much more effectively, possibly due to the fact that it has greater control over supply then its smaller rivals.

Creative also pointed to a $41.60 million charge related to restructuring of Creative's 3DLabs division. The company said the charge was necessary to reduce operating expenses so it could focus on its portable device market.

McHugh said the company expects to be profitable by the second half of 2006, and is turning to higher-margin audio products like sound cards and cutting prices of its Zen and Muvo music players to do so.

"We are examining each of our product categories to determine how we can improve revenues, return gross margins to 20 percent or higher, and reduce operating expenses as we target a return to profitability in the second half of the calendar year," he said.