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EA: Weaker than expected game sales

21 December 2005

EA's chief financial officer Warren Jenson said in a conference call with reporters and analysts that EA won't meet prior sales and earnings predictions for the current, third fiscal quarter, which ends December 30th. EA also expects to fall short on expectations for its final quarter and the rest of fiscal 2006, which ends in March 2006.
"It now appears (that the) overall market will be down double digits," Jenson said. "The demand curve has shifted abruptly."

Albeit this is not the first time in recent memory EA has announced disappointing results. In January and July, the company said sales were slow and profits had fallen. However, "Madden '06," the latest update to the company's best-selling football title, has managed to lead the game charts throughout the fall.

Jenson explained that while initial sales of Microsoft's next-generation console, the Xbox 360, were strong in North America and Europe, EA now doesn't think sales of the console or games made for it will be as high as expected.

Furthermore, he said, many people think Sony's forthcoming next-generation PlayStation 3 console will arrive in spring and that may be causing consumers to hold off on purchasing games for the current-generation PlayStation 2 and Xbox.

When asked if the company plans to cut research and development costs across the board as a way to make up revenue losses, Jenson said, "We're going to go through every aspect of the company, and where we have opportunities to reduce spending, we will take advantage of that opportunity. We want to come out of this stronger and faster."
Still, Jenson and EA CEO Larry Probst said that lower sales are an industry-wide phenomena. They went on to say that, the company's market share on current-gen consoles hasn't changed, and remains at about 30 percent. They also said that initial sales figures for the Xbox 360 show that EA has about 30 percent of the market share for Xbox 360 games.

It also looks like the No. 2 video game maker, Activision said its profit for the remainder of its fiscal year would miss its previous target amid the shift to the new generation of game consoles.

Analysts seem unsurprised by EA's announcement, largely due to their understanding that sales have been down generally for the last few months.

"Going into this console transition period, I think we are in for several quarters where software sales will not be as high as people were hoping for," said David Cole, president of DFC Intelligence. "Activision has been in a similar boat. It's more industry specific. It's not a reflection of EA."


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