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EA: Holiday sales disappointing

Video game giant says it's downgrading third- and fourth-quarter earnings due to lackluster figures.

Electronic Arts, the world's largest video game maker, announced Tuesday what many investors had already feared: Holiday sales won't be enough to pull the maker of hit games such as "Madden '06" out of a lackluster year.

In a conference call with reporters and analysts, EA chief financial officer Warren Jenson said the Foster City, Calif. company won't meet prior sales and earnings guidance for the current, third fiscal quarter, which ends Dec. 30. The game giant also expects to come up short on expectations for its fourth fiscal quarter and for all of fiscal 2006, which ends in March.

"It now appears (that the) overall market will be down double digits," Jenson said. "The demand curve has shifted abruptly."

This is not the first time in recent memory EA has announced disappointing results. In January, and again in July, the company said sales were slow and profits were down. However, "Madden '06," the latest update to the company's best-selling football title, has led industry sales throughout the fall.

Jenson explained that while initial sales of Microsoft's next-generation console, the Xbox 360, were strong in North America and Europe, EA now doesn't think sales of the console or games made for it will be as high as expected.

Further, he said, many people think Sony's forthcoming next-generation PlayStation 3 console will hit shelves in the spring and that may be causing consumers to hold off on purchasing games for the current-generation PlayStation 2 and Xbox.

Asked if the company plans to cut research and development costs across the board as a way to make up revenue losses, Jenson said, "We're going to go through every aspect of the company, and where we have opportunities to reduce spending, we will take advantage of that opportunity. We want to come out of this stronger and faster."

Still, Jenson and EA CEO Larry Probst said that lower sales are an industry-wide issue. In fact, they said, the company's market share on current-generation consoles hasn't changed, and remains at about 30 percent. They also said that initial sales figures for the Xbox 360 show that EA has about 30 percent of the market share for Xbox 360 games.

Last week, Activision, the No. 2 video game maker, said its profit for the remainder of its fiscal year would miss its previous target amid the shift to the new generation of game consoles.

Analysts seem unsurprised by EA's announcement, largely due to their understanding that sales have been down generally for the last few months.

"Going into this console transition period, I think we are in for several quarters where software sales will not be as high as people were hoping for," said David Cole, president of DFC Intelligence. "Activision has been in a similar boat. It's more industry specific. It's not a reflection of EA."

Electronic Arts did not give specific numbers, but the company previously expected a third-quarter profit, excluding items of between $1.18 and $1.28 a share on revenue of $1.48 billion to $1.58 billion.

For the full fiscal year, the company had forecast income excluding items of $1.45 to $1.60 per share on revenue of $3.25 billion to $3.4 billion.

The company's shares fell 2 percent in extended trading to $52.02. The stock rose more than 1.6 percent in regular Nasdaq trading.

Reuters contributed to this report.