EA Suffering This Christmas

Electronic Arts has said that it will fall short of its profit and revenue forecasts for fiscal 2009, blaming slow demand at retailers over the holiday period and the delay of Harry Potter. Nintendo's dominance on the Wii also got a mention...

"We are disappointed that our holiday slate is not meeting our sales expectations", said EA's CEO, John Riccitiello, in a statement. "Given this performance and the uncertain economic environment, we are taking steps to reduce our cost structure and improve the profitability of our business." This could involve trimming back its games portfolio and further lay-offs following the 6% October culling.

In a conference call EA execs said key titles had under-performed and noted that one key retailer had cut its orders to avoid over-stocking goods. "By itself one retailer can be as much as $60 million in revenue ... it's a large swing factor for Q3", said Riccitiello.

Further to that, execs said there will be a "material double digit reduction" in the unit sales of releases to retailers.

In the UK, while franchises such as FIFA and Need for Speed have performed reasonably well in the All-Formats Charts, newer EA properties such as Mirror's Edge and Rock Band 2 have failed to set the world on fire.

EA already cut its outlook significantly back in October, dropping it from $1.30 (£0.88) to $1.70 (£1.15) earnings per share to between $1.00 (£0.68) and $1.40 (£0.95). The news that it will not meet those expectations knocked its shares by 10.4% to $17.34 (£11.73) in overnight trading. That came after an 11.52% drop earlier on during regular trading.

The publisher said it will not provide new guidance prior to its third quarter results being published in February.

The Wii also got a nod. "There's no question that having the lead platform with two-thirds of the unit sales occurring to the first party owner is a really unusual thing", said Riccitiello. "It's a challenge.” Reggie Fils-Aime, president of Nintendo of America, recently said that third-party publishers don't 'get' the Wii.

It should be pointed out, however, that EA didn't lay blame squarely on Nintendo, with Riccitiello pointing out that the Wii is not a new factor in EA's outlook warning.

While one of the world's biggest publishers reducing its expectations at Christmas certainly doesn't bode well for the games industry, it's not all doom and gloom. Take-Two recently said that holiday sales have been better than expected, while Microsoft has echoed the sentiment.

^{Source: Reuters}