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EA warns of lower earnings, job cuts

The video game giant says sales slumped in October. Shares fall.

October 31, 2008|Alex Pham | Pham is a Times staff writer.

Electronic Arts Inc., the publisher of such video game franchises as Madden NFL and the Sims, on Thursday lowered its profit forecast for the year and said it planned to cut its workforce about 6%.

The world's largest game publisher said retail sales of its games slowed in October -- right about the time the global financial crisis deepened.

After years of hiring, EA says it plans to eliminate 500 to 600 of its 9,400 jobs to try to save $50 million a year in expenses.

The company's shares plunged more than 14% to $23.75 in after-hours trading, after it released its fiscal second-quarter results. They had fallen 31 cents, or 1.1%, to $27.73 before the closing bell.

"Considering the slowdown at retail we've seen in October, we are cautious in the short term," Chief Executive John Riccitiello said in a statement. "Longer term, we are very bullish on the game sector overall and on EA in particular."

EA reported a loss of $310 million, or 97 cents a share, for the quarter that ended Sept. 30. That was steeper than the loss of $195 million, or 62 cents a share, for the same quarter a year earlier.

Although increased spending on game marketing and development hurt the bottom line, revenue rose 40% to $894 million, from $640 million, thanks to brisk sales of Madden NFL 09, Spore and Warhammer Online.

Some of that revenue growth also came from less profitable titles such as Rock Band, which EA distributes for the popular franchise's owner and developer, MTV Networks.

For the fiscal year ending March 31, EA said it was still poised to ring up double-digit sales increases with revenue of $4.9 billion to $5.15 billion, up from $3.7 billion last year. It also said it wasn't sure whether it would make or lose money for the year; the company projected per-share earnings of between a loss of 21 cents and a profit of 7 cents. Last year, the company lost $1.45 a share.

Excluding one-time items, EA expects earnings of $1 to $1.40, down from a previous forecast of $1.30 to $1.70. It attributed the adjustment to the strengthening dollar, weak sales of older titles and the delayed release of its next Harry Potter game, from this Christmas season to summer 2009.

Chief Financial Officer Eric Brown said in an interview that the job cuts weren't necessarily tied to the economic downturn but were part of a broader restructuring effort the company has been undergoing since Riccitiello took the helm in early 2007. Brown said the cuts would be spread throughout the company's worldwide offices.

"These cuts have more to do with the company than the economy," said John Taylor, managing director of Arcadia Investments. "Revenues have flattened out, while head count and fixed costs have gone up on a regular basis."

The game industry, including EA, had been hiring furiously, especially in California, and video game sales have historically fared well during economic slowdowns.

Most analysts still project double-digit sales growth this holiday, with global revenue zooming past $50 billion, from $40 billion in 2007.

But they also acknowledge that retailers, fearing less foot traffic, are pulling back on orders of just about everything they sell, including games.

--

alex.pham@latimes.com

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