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THQ Shares Take a Hit From Video Game Console Wars

May 26, 2000|P.J. HUFFSTUTTER | TIMES STAFF WRITER

Caught by consumers waiting for the next generation of video game consoles to be released later this year, game software maker THQ Inc. warned investors Thursday that its sales and earnings would be lower than expected for the remainder of the year.

The Calabasas Hills-based developer said it expects to lose as much as $2.8 million, or 13 cents to 15 cents a share, in its second quarter, on sales of nearly $30 million. The company, known as one of the industry's strongest financial performers, also said it will take a one-time charge of $9.8 million to cover discontinued inventory.

Analysts polled by First Call/Thomson Financial had expected the company to post a profit of about $600,000, or 3 cents a share.

The news sent THQ's stock plunging as much as 48% by midday. It closed at $9, down $5.69, or 38.7%, on Nasdaq. It was the fifth biggest loser on all U.S. markets Thursday.

Chief Executive Brian Farrell blamed increased spending in THQ's marketing and product development, as well as a slowdown in the overall Nintendo 64 and Sony PlayStation markets.

"We're writing off some products that are just not panning out," Farrell said. "While we continue to be optimistic about revenue growth for the year as a whole, the current softness in the market is going to hit us at least through the third quarter."

THQ has several popular game titles headed for store shelves, but it is caught by industrywide consumer confusion over which video game console to buy.

For months, the industry's four leading hardware companies have been jockeying for attention over their new devices: Microsoft's X-Box, Sony's PlayStation2, Sega's Dreamcast and Nintendo's Dolphin.

Who will win this fight won't be clear until fall 2001, when Microsoft plans to start selling the X-Box. Nintendo's Dolphin will be out by early next year. Sega's Dreamcast, already released, has sold nearly 5 million units worldwide. And Sony recently announced that it would ship 1 million PlayStation 2 units to North America when it launches the $299 machine here Oct. 26.

Analysts said THQ also suffered from Sony's recent move to temporarily stop manufacturing its original PlayStation machine and divert those resources to making its next-generation machine.

In the meantime, the wait for new game machines is leaving Wall Street cool on game-maker stocks. Santa Monica-based Activision Inc.'s shares have fallen 62% this year; Interplay Entertainment Corp., based in Irvine, has fallen 30%; and Midway Games of Chicago is down nearly 73%.

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