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Electronic Arts Posts Loss as Sales Tumble

July 27, 2005|Alex Pham | Times Staff Writer

Video game maker Electronics Arts Inc. posted a fiscal first-quarter loss and a 16% drop in sales Tuesday and warned of a bumpy road ahead as new game consoles were developed.

The publisher of games such as "The Sims" and "Madden NFL" lost $58 million, or 19 cents a share, on sales of $365 million in the quarter ended June 30. It had earned $24 million, or 8 cents, on revenue of $432 million a year earlier.

The results beat Wall Street's average expectations for a $75.4-million loss, or a loss of 24 cents a share, and $326.8 million in sales, according to Thomson First Call.

Game sales industrywide have slowed as consumers anticipate the newer consoles. EA said sales of its games for PlayStation 2 and Microsoft Xbox fell 28% and 23%, respectively, in the quarter. At the same time, EA and others have had to increase spending to develop next-generation games.

EA also lowered its financial projections for the current fiscal year to earnings of $1.45 to $1.60 a share on sales of $3.3 billion to $3.4 billion, down from earlier projections of $1.55 to $1.70 on sales of $3.4 billion to $3.5 billion.

Company executives said the revision was primarily the result of delaying the release of "The Godfather," a hotly anticipated title, from the crucial Christmas season to next year.

Development of new game consoles will create additional challenges for EA and other game makers this year, company executives warned.

"If you're wondering whether something in the industry could go wrong by hardware delays, production snags or changes in demand, well, we think you should count on it," EA Chief Financial Officer Warren Jenson said during a conference call with analysts. "There is simply too much change going on for us to expect otherwise."

Analysts agreed. Chief among the uncertainties are whether Microsoft and Sony will launch their consoles on time and how well the systems will sell, said Michael Pachter, analyst at Wedbush Morgan Securities.

"Transitions are never smooth," he said. "There's so much risk remaining this year associated with the next console cycle, and EA is starting to feel some of it."

EA shares, which tumbled $2.90 to $59, fell an additional $1.60 to $57.40 in after-hours trading following the earnings announcement.

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