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Pachter: May U.S. Game Sales To Be Flat

Pachter: May U.S. Game Sales To Be Flat

June 5, 2006 | By Simon Carless

According to comments by Wedbush Morgan analyst Michael Pachter ahead of NPD's May U.S. retail console software sales data, which will be released after the market close on Thursday, June 8, the firm forecasts overall May sales of $320 million, flat compared to last year.

The company expects May sales to be driven by recent releases Square Enixs Kingdom Hearts II, Ubisofts Tom Clancys Ghost Recon: Advanced Warfighter, and Take-Twos Major League Baseball 2K6, along with new releases Nintendos New Super Mario Bros (DS), Activisions X-Men: The Official Game (PS2, Xbox, 360, PC, GC, GBA, DS), and what it describes as "possible sleeper hit" Take-Twos Rockstar Presents: Table Tennis (360). It also notes that 11 games sold over 100,000 units in April, and expects five in May (compared to six last year).

Wedbush Morgan's estimate reflects $135 million in sales contribution from new platforms (Xbox 360, PSP and DS) representing year-over-year growth of $101 million (the PSP and DS were available last year). They also expect current generation software sales of $185 million, reflecting a decline in sales of 35%, down $99 million compared to last year.

Overall, the U.S. game market's April sales were up an unexpected 16% compared to 2005, and Pachter comments that "...we expect sales to level off over the next few months, with sales growth in the last two or three months of the year... For the full year, we think that declines in current generation software sales will be greater than contribution from next generation software sales, and expect overall 2006 U.S. sales to be 4% lower than 2005 levels."

Pachter's comments continue: "It appears that 2006 is following a similar pattern to 2000, when the last console transition began. Consumers have slowed purchases of current generation console software while snapping up a... next generation console, the Xbox 360, and its associated software as soon as they become available, and waiting for the launches of the PS3 and Wii later this year. Through April, NPD data shows that Xbox 360 hardware sales in the U.S. were 1.5 million units, and we expect sales of between 300,000 400,000 units in May. Microsoft has remedied the supply-demand imbalance in the U.S. last month, with recent manufacturing capacity additions resulting in greater unit availability." Overall, according to estimates, the U.S. hardware installed base currently stands at 99 million current generation consoles (including handhelds) as of the end of April 2006 (up from 95 million at year end 2005).

Concluding, the Wedbush Morgan report suggests: "We think that the transition has begun, but believe that it is far from over. April provided a respite from double-digit sales declines (+16%), but we expect software sales to decline over the next several months. We believe that the publishers are, indeed, very sound investment vehicles, but believe that the risks of the transition are showing up in lack of investor confidence."

It ends: "Once Sony and Nintendo launch next generation consoles, we expect to see sales of software for the three major consoles and two handhelds more than offset sales declines of current generation software, and we expect to see industry sales growth rebound dramatically. At that time, investors should be much more comfortable owning shares of the publishers. Until then, we expect investor confidence to remain shaken."

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