Analyst - "EA has missed the current hardware cycle" (Blame the Wii!)

[theRepublic]

EA has "missed the current hardware cycle" and is unlikely to return to historical operating income margin levels "anytime soon", according to a new report by analysts at Cowen Research.

In an occasionally damning critique of EA's plans and guidance the report states that: "We believe that following serial earnings disappointments, Electronic Arts now deserves a lower valuation premium than the company has historically enjoyed."

"Since management first laid out its initial full year 2010 guidance and full year 2011 long-term guidance in February 2008, the company has failed to deliver on its earnings targets and has been forced to repeatedly revise down its guidance. Given this historical record, we do not think investors should place too much faith in management's current guidance."

The report suggests that EA's guidance for the next financial year is "fairly aggressive" but that its targets could still be met. EA's revenue targets currently stand at USD 4.3 billion, but the report suggests this can only be achieved via further cost cutting - which is likely to be damaging in the long term.

The report points out that publishing revenue growth will need to outperform overall industry figures by a considerable margin, despite a "pared back" release schedule and currently difficult global economic conditions.

Growth in digital distribution is seen as a key factor, with EA aiming for a 100 per cent increase over the course of the year - which the report again characterises as achievable but with considerable downside risk.

Despite considerable scepticism over EA's business model and guidance the report is not entirely critical, maintaining a share rating advice level of "neutral".

Indeed, the report suggests that EA's own expectations for its first quarter may be unnecessary low, with a strong line-up including EA Sports Active and Bloom Blox: Bash Party on the Wii. First year sales in the US are estimated at 1.4 million and 350,000, respectively.

The article would have been good if it stopped right there.

I wonder what they mean by "missed the current hardware cycle".  Through the first half of the article, it sounded like it meant that EA should have bet on the Wii instead of the HD consoles.  Then in the second half of the article they say that they don't like how the Wii sells third party software.  So what should EA have done?  It sounds to me like "missed the current hardware cycle" is a nice was of saying "EA is fucked no matter what they do".

The analysis is all doom and gloom, no solutions.  Terrible.