EA and THQ Lose the Blame Game
By
Rick Aristotle Munarriz
February 5, 2009
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Why do I get the feeling that I've played this game before?
THQ (Nasdaq: THQI) is disposing of studios, is axing titles, and will dismiss 24% of its workforce as a result of a crummy quarter and apparently a hazy future. The news comes on the heels of Electronic Arts' (Nasdaq: ERTS) announcing a wave of staff reductions earlier this week.
If these end bosses look familiar it's because the two video game specialists also whacked away at their payrolls in one-two punch fashion three months ago.
In THQ's case, the new moves should eliminate another $100 million in costs come fiscal 2010, on top of the previously announced $120 million shave.
THQ definitely needs to do something. Revenue fell by 30% to $357.3 million during its fiscal third quarter. On a non-GAAP basis -- before takings hits for things like realignment expenses and goodwill impairment -- THQ posted a loss of $0.14 a share. It has scored a profit of $0.22 a share from continuing operations a year earlier.
The company has scored well with recent releases like Saints Row 2 and its latest World Wrestling Entertainment (NYSE: WWE) licensed game, but it's clearly not enough. Sales may have grown for releases on Nintendo's (OTC BB: NTDOY.PK) Wii and Microsoft's (Nasdaq: MSFT) Xbox 360, but that was more than offset by sharp drops on sales for the Nintendo DS and all of Sony's (NYSE: SNE) platforms.
EA's report on Tuesday was slightly better -- with a modest top-line uptick and at least mustering a non-GAAP profit -- but what has become of this industry?
Video game retailers have reported brisk selling during the holidays. More developers are also embracing digital delivery and its margin-widening promise. Is it all a facade?
Hardly. THQ and EA have company-specific shortcomings. Unless market leader Activision Blizzard (Nasdaq: ATVI) shocks investors next week, when analysts see the Guitar Hero and World of Warcraft giant posting gains in revenue and earnings, I'll stick to my theory.
Other games to play:
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