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EA warns on Xbox shortages
No. 1 video game maker says low supplies of Microsoft's new console causing weak holiday sales.
December 21, 2005: 7:01 AM EST
No. 1 video game maker blamed its sales and earnings warning on limited supplies of the Xbox 360 from Microsoft.
No. 1 video game maker blamed its sales and earnings warning on limited supplies of the Xbox 360 from Microsoft.

SAN FRANCISCO (Reuters) - Top video game maker Electronic Arts Inc. warned that quarterly profit and revenue would be "well below" earlier estimates due to lackluster holiday sales that it blamed on shortages of the Xbox 360.

The warning Tuesday sent shares of Electronic Arts (Research) down 3.8 percent in after-hours trading Tuesday.

The publisher of titles like football game "Madden NFL 06" will miss its targets due to shortages of the new Xbox 360 video game console from Microsoft (Research) and as consumers wait for rival machines from Sony and Nintendo next year, executives said.

"There are rumors that the PlayStation 3 may launch as early as spring, and that's causing some people to evaluate whether to make a purchase now or wait," CEO Larry Probst told a conference call.

The soft spending means the overall market could be down double digits, with Electronic Arts' third-quarter revenue possibly falling in the mid-teens, Chief Financial Officer Warren Jenson said.

"We don't see them getting to the installed base numbers we had forecast when we gave previous guidance," Jenson said of Xbox 360 shipments.

EA gets about half of its revenue during its third quarter, which includes the U.S. holiday shopping season.

The warning also sparked a sell-off of other video game companies. Activision Inc. (Research), the No. 2 video game publisher, fell 1 percent, while Take-Two Interactive Software (Research) fell 2.8 percent and THQ (Research) fell 3 percent.

"There are 5 million people who really believe they are getting an Xbox 360 relatively soon, by February. Microsoft has shipped 500,000 units, so 4.5 million people are doing nothing. That's enough to just kill Christmas," said Michael Pachter, an analyst with Wedbush Morgan Securities.

Executives did not give specific numbers, but they said revenue and profit for the third and fourth fiscal quarters and fiscal 2006 would fall short of earlier estimates.

The company previously expected a third-quarter profit of $1.18 to $1.28 a share on revenue of $1.48 billion to $1.58 billion.

For the full fiscal year, EA had forecast income, excluding items, of $1.45 to $1.60 per share on revenue of $3.25 billion to $3.4 billion.

"The lack of specific guidance reflects that these guys weren't really prepared for a downturn and they are not really sure how bad it is, how long it will last, or whether it will persist beyond the first couple quarters of '06," Pachter said.

EA said it was seeing weak sales of games like "James Bond 007: From Russia with Love," snowboarding title "SSX On Tour" and "Battlefield 2."

The Redwood City, Calif.-based company is not the only one suffering from the sudden drop in demand that saw U.S. video game sales fall 18 percent in November from a year earlier.

Last week, 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.

P.J. McNealy, an analyst with American Technology Research, said the shortages were not likely to be resolved in the next few months.

"This may be a two-year recovery, not a 12-month recovery. We're likely not going to see the PS3 in large volume next holiday," McNealy said.


For more on the hit that Xbox 360 shortages are causing for the video game industry, click here.

Click here for "Game Over," the column on the business of video games from Chris Morris.  Top of page

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