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EA says profit will miss forecasts, 007 not helping

22-Dec-2005 • Gaming

Top video game maker Electronic Arts Inc. said on Tuesday that quarterly profit and revenue would be "well below" earlier estimates due to lackluster holiday sales, sending its shares down 3.5 percent - reports Reuters.

EA said it was seeing weak sales of games like James Bond 007: From Russia with Love, snowboarding title "SSX On Tour" and "Battlefield 2."

The publisher of titles like football game "Madden NFL 06" will miss its targets due to shortages of Microsoft Corp.'s new Xbox 360 console and as consumers wait for rival machines from Sony and Nintendo next year, executives said.

"There are rumors that the PlayStation 3 may launch as early as spring, and that's causing some people to evaluate whether to make a purchase now or wait," Chief Executive Larry Probst told a conference call.

The soft spending meant the overall market could be down double digits, with Electronic Arts' third-quarter revenue possibly falling in the mid-teens, Chief Financial Officer Warren Jenson said.

"We don't see them getting to the installed base numbers we had forecast when we gave previous guidance," Jenson said of Xbox 360 shipments.

EA gets about half of its revenue during its third quarter, which includes the U.S. holiday shopping season.

The company's shares fell 3.5 percent in extended trading to $51.24, after rising more than 1.6 percent on the Nasdaq.

The warning also sparked a sell-off of other video game companies. Activision Inc., the second-biggest publisher, fell 1 percent, while Take-Two Interactive Software fell 2.8 percent and THQ fell 3 percent.

"There are 5 million people who really believe they are getting an Xbox 360 relatively soon, by February. Microsoft has shipped 500,000 units, so 4.5 million people are doing nothing. That's enough to just kill Christmas," said Michael Pachter, an analyst with Wedbush Morgan Securities.

Executives did not give specific numbers, but said revenue and profit for its third and fourth fiscal quarters and fiscal 2006 would fall short of earlier estimates.

The company previously expected a third-quarter profit of between $1.18 and $1.28 a share on revenue of $1.48 billion to $1.58 billion.

For the full fiscal year, EA had forecast income excluding items of $1.45 to $1.60 per share on revenue of $3.25 billion to $3.4 billion.

"The lack of specific guidance reflects that these guys weren't really prepared for a downturn and they are not really sure how bad it is, how long it will last, or whether it will persist beyond the first couple quarters of '06," Pachter said.

The Redwood City, Calif.-based company is not the only one suffering from the sudden drop in demand that saw U.S. video game sales fall 18 percent in November from a year earlier.

Last week, Activision said its profit for the remainder of its fiscal year would miss its previous target amid the shift to the new generation of game consoles.

PJ McNealy, an analyst with American Technology Research, said the shortages were not likely to be resolved in the next few months.

"This may be a two-year recovery, not a 12-month recovery. We're likely not going to see the PS3 in large volume next holiday," McNealy said.

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