UPDATE 1-Music player firm Creative predicts return to profit

* Q3 net loss US$23.6 mln

* Q3 revenues US$183.8 mln

* Outlook: expects to be profitable in second half (Recasts with outlook, changes dateline to Singapore, adds detail, share price)

By Ovais Subhani

SINGAPORE, May 2 (Reuters) - Digital music player maker Creative Technology Ltd. posted a quarterly loss on Wednesday on lower-than-expected sales in the United States and Asia but forecast a return to profit later this year.

Craig McHugh, president of Creative's (CREA.SI)CREAF.O U.S. subsidiary Creative Labs Inc., said in a statement that lower costs and new product launches would help turn the company profitable in the second half of 2007.

"With the potential we see for these exciting new products and our continued efforts to reduce operating expenses, we are now targeting to be profitable in the second half of the calendar year, with gross margins at 20 percent or higher."

Earlier, the company reported a third-quarter loss of $23.6 million, or 28 cents per share, compared with a loss of $114.3 million, or $1.38 per share, in the third quarter a year ago.

Revenue fell to $183.8 million from $225.7 million a year ago.

Creative, whose music players compete with Apple Inc.'s (AAPL.O) popular iPod, had forecast in March revenues of $180 million and an operating loss of $20 million for the quarter due to lower sales and restructuring charges.

McHugh said that a 10 percent cut in global headcount resulted in restructuring charges of about $3 million.

He said the company was now targeting to lower operating expenses to about $50 million, from $59.6 million before restructuring charges in the third quarter.

Creative earned a net profit of $92 million for the fiscal second quarter ended December, helped by a one-time licence payment from Apple Inc. (AAPL.O) to settle all patent litigation over the iPod music player.

Last August, Apple agreed to pay Creative $100 million to settle a string of lawsuits between the two firms. The settlement gives Apple a licence to use a Creative patent in its music player and other products.

Apple has over 70 percent of the U.S. market for digital music players. Besides Apple, Creative competes with South Korea's Samsung Electronics (005930.KS), which produces the Yepp players, Japan's Sony Corp. (6758.T), and South Korea's Reigncom Ltd. (060570.KQ), whose iRiver players have won good reviews.

Mobile handset makers Nokia (NOK1V.HE) and Motorola MOT.N are also adding MP3 functions to high-end music phones.

Creative shares rose 2.2 percent at the open to S$9.30 after its results. (Additional reporting by Robert MacMillan in New York)