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Shares Fall As EA Issues Profit Warning

Shares Fall As EA Issues Profit Warning

March 22, 2005 | By David Jenkins

March 22, 2005 | By David Jenkins
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Industry stalwart Electronic Arts has been forced to issue a profits warning - an announcement that has caused the company's shares to plummet by 13 percent, to $57.74. The company lowered its fiscal 2005 outlook to between $3.1 billion and $3.13 billion, down from $3.28 billion to $3.33 billion.

In an official statement, EA gave the reason for the less than expected quarterly profits as a 'significant falloff' in sales of older, catalog games, as well as the impact of hardware shortage of the PlayStation 2, and to a lesser degree the Xbox, over the Christmas period.

"We clearly underestimated the impact of the hardware shortages on our 4Q sales," EA CFO Warren Jenson told Reuters. He added that the company's fourth quarter titles were performing well, "but we had expected more."

The company also cited lower than expected sales of its Need for Speed and NFL Street franchises in the U.S. as an additional contributing factor, with GoldenEye: Rogue Agent, The Lord of the Rings: The Third Age and The Urbz, all of which received a mixed reception from critics, also underperforming globally.

At an analyst level, fingers were pointed at major competitive titles such as Half-Life 2 and Grand Theft Auto: San Andreas, with EA president Larry Probst singling out World of WarCraft in particularly as having "had an impact on everyone in the industry."

"Everybody in the industry has been surprised with World of WarCraft," he said. "I can tell you from firsthand observation that there are people who haven't played games in years who are now spending 15 to 20 hours a week playing World of WarCraft."

Whether this obvious admiration for Blizzard's massively multiplayer online role-playing game will result in Electronic Arts focusing more on that sector is unclear - it seems to be a genre which the company has had little influence in, following the waning of support for Ultima Online and the relatively disappointing performance of The Sims Online.

No suggestion was given as to how the company would combat a lack of demand for older titles, although some analysts are noting that the company's policy of yearly updates for many of its franchises may be lessening the appeal and shelf life of older titles.


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