I've had it with sugarcoating. THQ (Nasdaq: THQI) issued a press release last night that would seem harmless -- if you never got past the header:

"THQ Announces May 2011 Release Date For Red Faction Armageddon; Bolsters Strong Fiscal 2012 Line-Up," reads the headline.

Good news, right? This is an announcement for an upcoming game, potentially a good one in THQ's arsenal. There's no way that the video game developer's corporate communications department is trying to spin bad news into something positive. Right?


Red Faction Armageddon -- not to be confused with Take-Two Interactive's (Nasdaq: TTWO) blockbuster Red Dead Redemption -- was originally supposed to hit the market by the end of this fiscal year. This is actually bad news.

Work a few paragraphs into the release, and investors will learn that THQ is hosing down its outlook for fiscal 2011. Based "primarily" on the shifted release, the software developer is now expecting to post a non-GAAP loss between $0.10 a share and $0.20 a share this fiscal year on $800 million to $825 million in revenue.

Just a month ago, THQ was set on delivering breakeven results on as much as $865 million in revenue.

This story doesn't end there, of course. The industry is in a serious funk, and this isn't the first time that THQ has had to talk down its fiscal 2011 guidance. Back in May, it initiated its year-ahead outlook by targeting a profit of $0.25 a share to $0.30 a share on $905 million to $925 million in revenue.

In other words, this isn't just about a slight delay in getting a particular title out.

It's not just THQ, since the fundamentals continue to deteriorate for the industry in general. Sector tracker NPD Group reported a 10% decline in overall sales last month, and that came after a 16% slide in August of last year.

There is certainly plenty of buzz today around this morning's debut of Halo: Reach, the final game from the original creators of Microsoft's (Nasdaq: MSFT) flagship Xbox franchise. While Microsoft still owns Halo, and will likely keep future games in the series exclusive to the Xbox, Activision Blizzard (Nasdaq: ATVI) recently inked a 10-year publishing deal with Halo originator Bungie for its next project. Any future titles from the studio will likely span different consoles and platforms.

There are other signs of life, from Take-Two's surprising profit to retailer GameStop's (NYSE: GME) positive comps in its latest quarter.

Unfortunately, the sector as a whole is still stumbling. THQ just happens to be a weak player within a weak sector. You may as well get out now before the next guidance hosing comes around.

Is this a sector worth buying into as a turnaround, or is in a funk for a lot longer? Share your rescue plan in the comment box below.

Microsoft is a Motley Fool Inside Value selection. Take-Two Interactive Software is a Motley Fool Rule Breakers recommendation. Activision Blizzard is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a synthetic long position on Activision Blizzard. Motley Fool Options has recommended writing covered calls on GameStop. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Activision Blizzard and Microsoft. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz will admit to still playing video games, though finding time is the rub. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.