Two of the video game sector's top dogs reported quarterly earnings this week: industry king Electronic Arts (NASDAQ:ERTS) on Thursday afternoon, and smaller rival THQ (NASDAQ:THQI) Friday morning. Both of them reported sharp declines in what was expected to be a tough quarter for the industry.

But that's where the similarities end. EA mostly disappointed, while THQ surpassed expectations. Their outlooks for calendar year 2006 differ, too.

EA comes in light, forecasts weak Q4
EA said net revenue fell 11% to $1.27 billion, with four of its titles selling more than 2 million copies each and five others eclipsing the 1 million mark. One title -- Need for Speed Most Wanted -- sold more than 7 million copies and was the best-selling game in Europe in 2005. The company claimed an impressive 30% revenue share in North America (and a 24% share in Europe) on all titles sold for the Microsoft (NASDAQ:MSFT) Xbox 360 console launched in November.

But here are the key stats: As gamers save their bucks for next-generation systems such as the Xbox 360 (which is in short supply), the Sony (NYSE:SNE) PlayStation 3, and the Nintendo Revolution due later in 2006, revenues on games for the PlayStation 2 platform fell 25%, while games for the Xbox and Nintendo GameCube were down 35% and 37%, respectively. Meanwhile, operating expenses also were up slightly (3.6%) because of higher marketing and research-and-development expenses.

As a result, earnings came in lighter than expected (the company did warn about it back in December, though it declined to give specifics). EA saw fourth-quarter earnings fall 31% to $259 million, or $0.83 per share. On a non-GAAP basis, the company earned $0.86 per share, short of the $0.90-per-share analyst estimate.

EA's fourth-quarter outlook is also weak. The company expects net revenue between $550 million and $600 million, with non-GAAP earnings of $0.06 to $0.14 per share, compared with the $0.14-per-share analyst estimate. EA expects to post a GAAP loss, with charges of $0.30 per share, including a $0.17-per-share charge related to the pending $680 million acquisition of JAMDAT Mobile (NASDAQ:JMDT).

THQ beats estimates, forecasts growth
THQ's third-quarter revenues fell 10.6% to $357.8 million, and the company posted a 24% decline in net income and a 31% drop in earnings per share to $47.6 million and $0.72, respectively. But the good news for THQ is that those figures landed well ahead of analyst estimates, which called for revenues of just $320 million and earnings of $0.65 per share. That mostly made up for the company's fourth-quarter earnings forecast of $0.02 per share falling short of the $0.11-per-share estimate.

The company has shipped 1 million units of seven different titles so far this fiscal year. It sent out another million units of four titles during the holiday quarter and has moved more than 2.5 million copies of the latest game in its WWE (NYSE:WWE) series, WWE SmackDown vs. Raw. Among the other million-unit sellers were a game based on Pixar's (NASDAQ:PIXR) The Incredibles and another that revolves around SpongeBob SquarePants.

Contrasting outlooks
For the year ending this March 31, THQ expects to post earnings of $0.67 per share on $790 million in revenues. Looking ahead, the company expects earnings to climb back to $1 per share for the fiscal year ending March 31, 2007, with revenues growing to $900 million to $950 million.

What makes that forecast interesting is that THQ didn't have an Xbox 360 game on the market last quarter, while current-generation Xbox games made up less than 5% of sales. What's more, approximately one-third of THQ's current sales are for handheld systems.

In contrast, EA anticipates a difficult 2006 calendar year, with total industry software sales down 0% to 5% and a 35% to 45% decline in software sales for current-generation consoles. The company also expects total console sales to fall 10% to 15%. While continuing to invest in next-generation consoles, EA sees Xbox 360 console sales ramping up as the year progresses, with the PS3 and Revolution releases toward the end of the year closing out the transition period and (EA hopes) fueling growth.

That said, I still like both companies for the long haul. Despite the short-term struggles, EA remains the biggest and best player in the game and is well-positioned to capitalize when the next-generation systems come online. In addition to online and mobile opportunities, EA -- with its heavy-hitting sports lineup -- is also the best-positioned company to benefit from the coming rise for in-game advertising revenues. Meanwhile, THQ continues to be successful as a strong niche player, with games geared toward younger gamers, and its growing portfolio of more mature games -- such as Juiced and Warhammer -- should continue to pay off.

Electronic Arts and Pixar are Motley Fool Stock Advisor recommendations, and Microsoft is an Inside Value pick. Check out our family of investing newsletters, and if you find one that fits your investing style, try it out free for 30 days.

Fool contributor Jeff Hwang owns shares of Electronic Arts. The Motley Fool has a disclosure policy.