4th UPDATE: It's On To Plan B For Electronic Arts
04 2월 2009 - 9:12AM
Dow Jones News
With discounts not driving sales of its games, it's on to plan B
for Electronic Arts Inc. (ERTS), which includes a focus on
aggressive cost-cutting, targeting more games for the red hot Wii
console, and thinning out its puffed-up portfolio.
While some analysts expressed their disappointment in the new
steps outlined Tuesday, shareholders seem to like the plans.
Electronic Arts shares were up more than 5% in after-hours
trading.
The Redwood City, Calif.-based video game maker now plans to cut
1,100 jobs, or about 10% more than previously announced, and close
a dozen plants, which is twice what it had previously
disclosed.
Also, rather than producing a slate of primary titles and scores
of second and third-tier games, Electronic Arts now plans to focus
on making far fewer games, and only ones along the lines of
well-known game franchises like "Sims," in part to make better use
of marketing spending. The titles Electronic Arts announced Tuesday
for its fiscal 2010, starting in March, are 14% fewer than its
fiscal 2009.
Electronic Arts also plans to focus on making more best-selling
titles for Nintendo Co.'s (NTDOY) Wii console, which is one of the
bright spots in the game industry, and is helping to drive overall
growth of video games.
Electronic Arts has seven Wii titles in the Top 50, and none
ranking above the top 20. "We need to move further up the charts,"
Electronic Arts Chief Executive John Riccitiello said during a
conference call with analysts.
The moves comes too late to salvage Electronic Arts' fiscal
2009, in which it dramatically discounted games in order to drive
sales. But conditions are deteriorating, so much so that Electronic
Arts on Tuesday pushed back the release date of three major new
releases - including a potential blockbuster sequel to the "Sims"
franchise - to shift those profits and revenues to the next fiscal
year.
The company now expects a fiscal 2009 adjusted loss of 35 cents
a share on revenue of $4.2 billion to $4.25 billion. The adjusted
revenue is seen at $4.1 billion.
"A complete disaster," Mike Hickey, analyst with Janco Partners,
said. "EA didn't do an adequate job. They are lacking any
sustainable growth engine in my view."
The company had already lowered its fiscal 2009 earnings
expectation to a range of $1 to $1.40 a share in October, though it
stood pat at the time on its revenue guidance of $4.9 billion to
$5.15 billion.
For its fiscal 2010, Electronic Arts expects a better showing.
It sees adjusted earnings of $1 a share in its fiscal 2010, a 40%
gain from what analysts expect it to report in its current fiscal
year, and flat fiscal 2010 revenue growth. Both estimates are way
below consensus expectations.
The new emphasis dovetails with a worse-than-expected fiscal
third quarter that Electronic Arts reported Tuesday. Trading of
Electronic Arts shares was halted for a short time after hours.
The company, well known for its "Rock Band" and "Madden" sports
franchises, reported a net loss for the quarter ended Dec. 31 of
$641 million, or $2 a share, compared with a year-earlier net loss
of $33 million, or 10 cents a share. The latest quarter included
charges of $368 million for the impairment of its wireless business
and $244 million for a valuation-allowance reserve on deferred tax
assets.
Excluding stock-based compensation and those other items, the
company's earnings fell to 56 cents a share from 90 cents.
Revenue rose 10% to $1.65 billion, excluding a deferred-revenue
benefit from online-enabled packaged goods games and digital
content. Including the benefit, revenue was up slightly to $1.74
billion.
A Thomson Reuters analyst survey projected adjusted earnings of
88 cents on revenue of $1.9 billion, excluding the deferred-revenue
benefit.
Electronic Arts' gross margin fell to 44.1% from 48%. The
company has been slashing prices to prime the pump for sales.
Electronic Arts Chief Financial Officer Eric Brown, in an
interview, said the company also had a higher mix of less
profitable games sold.
Electronic Arts shares are off more than 70% from their 52-week
high of $54.81 in May.
-By Jay Miller, Dow Jones Newswires; 201-938-2331;
jay.miller@dowjones.com
(Ben Charny contributed to this report.)
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