Wedbush Morgan's Michael Pachter has said that following Atari's weak Q2 results, he believes the company could drop its publishing business and turn solely to distribution, following a staff reduction of up to 50 percent.
Following the company's Q2 report showing sales down to $13.3 million, and net losses of $7.7 million -- a massive leap from the prior year's $68,000, Wedbush lowered its sales estimates for fiscal 2008 from $75 million to $72 million.
"Atari provided little detail of its strategy for FY08 as it did not hold a conference call (again), but did state that it expects even fewer releases in FY:08 than in FY:07 implying lower revenues," Pachter noted.
"The company has made progress in aligning its operating expenses with lower revenues (including its latest restructuring), however as revenues continue to decline, the company’s cost cutting is not keeping pace," he continued.
According to Pachter, Atari's plan to "save its way to prosperity" is not sufficiently taking future publishing R&D into consideration. "We are concerned that lack of investment in R&D and marketing (along with the divestiture of many of its brands) could limit Atari’s ability to effectively compete as the next generation consoles begin to ramp."
"It is likely," he predicted, "that the company will cease its publishing operations altogether and become a pure distribution business. However, in order to profitably do so, we believe that it must cut its staffing levels by over 50%."
Following "significant management changes" on the company's board and the departure of its CEO, as well as with more layoffs in the cards, Pachter concludes, "if the company is able to get through FY:08 (by securing funding and aligning its cost structure) without compromising its overall financial well-being, it may be able to return to profitability in FY:09. Again we note that this is a highly speculative scenario."
