Electronic Arts sees loss as it delays games

A screen shot of Electronic Arts' Madden NFL 09 is seen in a handout image.

NEW YORK (Reuters) - Video game publisher Electronic Arts Inc posted weaker-than-expected results and said it would delay the release of several games, causing it to forecast a loss for the current fiscal year.

But EA shares rose 6.7 percent in what analysts called a relief rally as the company's outlook for fiscal 2010 was not as bad as some had feared. Shares of EA, which goes head-to-head with Activision Blizzard Inc for the title of biggest publisher, had hit a year-low on Monday, and have fallen nearly 70 percent in the past year.

"The most surprising positive thing, although I don't know if I believe it at this point, is their guidance for next year," said analyst Daniel Ernst from Hudson Square Research. "Their guidance seems overly optimistic in light of overly worse-than-expected results here. It's going to be very much a 'show me' story."

The publisher of popular franchises such as "Madden NFL" forecast fiscal 2010 earnings before items at about $1.00 per share on net revenue of $4.3 billion. Analysts on average had expected earnings of $1.13 per share on revenue of $4.8 billion, according to Reuters Estimates.

After disappointing fourth-quarter sales for several of its top titles, including the "Need for Speed" driving franchise, EA plans to cut costs and shift focus to developing what it hopes are big hits -- such as its upcoming "Sims 3" game and games for Nintendo Co Ltd's Wii systems.

"The Nintendo Wii is even more important than one year ago. It is a clear leader in this cycle," EA Chief Executive John Riccitiello said on a conference call. "In (2008) we were No. 3 in this platform in North America and Europe but we need to move further up on the charts."

EA's fiscal third-quarter net loss was $641 million, or $2.00 a share, compared with a loss of $33 million, or 10 cents a share, a year ago.

Excluding costs related to restructuring and other special items, EA had a profit of 56 cents a share for the quarter ended December 31, far short of analysts' expectations of 88 cents, according to Reuters Estimates.

While experts expect the video game software industry to manage the recession better than others, companies like EA have been hurt as retailers try not to overstock their stores with titles that are not huge hits.

EA Chief Financial Officer Eric Brown told Reuters in an interview that the video game industry overall was doing well but said demand was concentrated on the best-selling titles.

He said EA expected to develop 10 to 20 percent fewer game titles in fiscal 2010, which begins in April, than in the current fiscal year.

EA said it would delay the release of "Sims 3," "Godfather 2" and "Dragon Age" to fiscal 2010 from fiscal 2009, and that it would narrow its product portfolio and cut variable costs.

MORE JOB CUTS

The company, based in Redwood City, California, also said it would cut 1,100 jobs, or about 11 percent of its workforce, higher than the 1,000 it announced in December. It also plans to close 12 facilities as it narrows its product portfolio.

EA expects to incur total restructuring charges, including severance and facility closures, of $65 million to $75 million, which will be recorded over the next 12 months.

Making such deep cuts might complicate EA's revenue growth plans, said analyst Mike Hickey of Janco Partners.

"They are cutting 1,100 people, and they are (planning on) growing 3 percent. That's not the most exciting equation on an operational level," he said.

EA said its fiscal third-quarter revenue rose 10 percent in the last quarter to $1.65 billion. Analysts had expected $1.9 billion, according to Reuters Estimates.

"The quarter was definitely worse than I thought, definitely below the most pessimistic of expectations," said analyst Todd Greenwald of Signal Hill Group. "The sort of silver lining on the cloud: they gave fiscal 2010 guidance that is slightly above where I was and slightly below consensus, but I think people were fearing worse."

EA in December warned its fiscal 2009 profit and revenue will fall short of already-low forecasts due to disappointing holiday sales of its video games in North America and Europe.

It forecast a loss of 35 cents per share, excluding items, in fiscal 2009 on net revenue of $4.1 billion. Analysts were expecting a profit of 60 cents per share on $4.6 billion in revenue, according to Reuters Estimates.

EA shares rose to $16.55 in extended trading, before slipping from the highs to $16.32. They had closed at $15.50 on Nasdaq. The stock had hit a 12-month low of $14.66 on Monday.

(Reporting by Franklin Paul; editing by Richard Chang)

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