Once considered impervious to a stormy economy, the video game sector is starting to show signs of strain.
Electronic Arts Inc., which produces such franchises as the Sims and Madden NFL, said Tuesday that it probably would miss sales and profit targets for its fiscal year because of disappointing holiday sales in North America and Europe.
The world's largest game publisher also said it would find ways to cut costs, including canceling some game projects and making deeper job cuts than the 6% workforce reduction it had announced in October.
"While we saw significant improvement in the overall quality of our key products this year, we are disappointed that our holiday slate is not meeting our sales expectations," EA Chief Executive John Riccitiello said.
The Redwood City, Calif., firm's shares plunged $2.52, or 11.5%, to $19.35 before the announcement, then almost 10% more in after-hours trading.
The news came the same day that Sony Corp., which makes the PlayStation 3 game console and many other consumer electronics, said it would eliminate more than 8,000 jobs, or 5% of its workforce, and let go at least that many seasonal and temporary workers to cope with an "acute downturn in the economic climate." Sony also said it planned to slash investments in its electronics business by 30% during its fiscal year ending March 2010.
Analysts had predicted that the video game industry would hold up well to the broader economic problems because consumers would look for more cost-effective ways of entertaining themselves at home.
Most still expect the industry's overall revenue to grow this year. But with less consumer wealth to go around, companies such as EA are feeling the pinch as retailers order fewer games to avoid being stuck with too much inventory at the end of the year.
"The economy is negatively impacting the video game industry," said Arvind Bhatia of Sterne Agee & Leach in Dallas. "That said, the industry is performing much better relative to most industries."
On Oct. 30, EA said it planned to cut 6% of its 9,500 workers. About 2,550 work in four California offices: Redwood City, Playa Vista, Westwood and Emeryville.
But as a result of the slowdown in retail orders, EA said Tuesday that it would cut an unspecified number of additional jobs and miss its original financial forecast.
