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Electronic Arts Reports Loss on Impairment Charges
By Adam Satariano
Feb. 3 (Bloomberg) -- Electronic Arts Inc., the world’s second-largest video-game publisher, reported a $641 million loss after writing down game developer Jamdat Mobile Inc.
The third-quarter loss of $2 a share was the company’s eighth in a row. It compared with a loss of $33 million, or 10 cents, a year earlier, the Redwood City, California-based company said today in a statement. Revenue rose 10 percent to $1.65 billion.
The U.S. recession and Electronic Arts’ failure to develop hits for Nintendo Co.’s best-selling Wii console have forced Chief Executive Officer John Riccitiello to cut jobs, close studios and trim his fiscal 2009 sales forecast. Electronic Arts also delayed the release of “Sims 3” until June and the Bioware unit’s “Dragon Age: Origins” until the second half of this year from early 2009.
“The alarm bells are ringing,” said Mike Hickey, a Greenwood Village, Colorado-based analyst for Janco Partners Inc. “They are struggling to find games that really resonate with the market.”
Electronic Arts climbed 84 cents, or 5.4 percent, to $16.34 in extended trading, after the company said it would reduce operating expenses by $500 million in fiscal 2010. The shares rose 64 cents to $15.50 in regular Nasdaq Stock Market trading, and have fallen 68 percent in the past year.
The $368 million charge related to the company’s wireless business was necessary because of a drop in Electronic Arts’ market value, Chief Financial Officer Eric Brown said in an interview. The company paid $682 million for Jamdat in 2006 to increase sales of games and ring tones on mobile devices.
Games ‘Underperformed’
The results also included $244 million in costs related to certain tax assets. Profit excluding some items was 56 cents a share, missing the 89-cent average estimate of analysts compiled by Bloomberg. Sales including changes in deferred revenue totaled $1.74 billion, missing the $1.89 billion average estimate.
“Their games clearly underperformed dramatically during the holiday,” Hickey said.
For the fiscal year ending in March, the company expects to lose $3.29 to $3.56 a share. Revenue is anticipated at $4.2 billion to $4.25 billion, Electronic Arts said. The company said in December it would miss its previous forecast for revenue and profit because of slow holiday sales.
Electronic Arts’ only game in the top 10 in U.S. sales last year was “Madden NFL,” according to researcher NPD Group Inc.
Riccitiello is devoting more resources to developing hit games for the Wii. In May, the company will release “Active,” a fitness game for the Nintendo console that’s being marketed to women. Electronic Arts also will introduce a tennis game this year that utilizes the Wii’s motion-activated controllers.
Job Cuts, Studio Closings
The game maker is cutting 1,100 jobs, or 11 percent of its workforce, and consolidating or closing studios and publishing locations. The changes will be complete by March 31, the company said in December.
The moves come amid the economic slowdown that’s hurting the broader video-game market. Nintendo last week lowered its 2009 sales forecast for the Wii by 1 million units to 26.5 million.
Last year, video-game sales in the world’s three largest markets -- the U.S., U.K., and Japan -- grew a combined 11 percent, according to Top Global Markets, a report released by NPD, Gfk Chart-Track Ltd and Enterbrain Inc.
Gains in the U.S. and U.K. were offset by a decline in Japanese purchases, which slid 13 percent, in part because of a decline in software for portable players.
