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PS2 delays put a drag on Electronic Arts

The maker of game software sees a soft market ahead as it waits for Sony to increase the number of PlayStation 2 consoles in North America and Europe.

Electronic Arts sees a soft market ahead as it waits for Sony to increase the number of PlayStation 2 consoles in North America and Europe.

During a conference call Tuesday with analysts, the largest independent maker of game software reduced its financial targets for its fiscal fourth quarter, which ends in March. Electronic Arts now expects revenue to be comparable to the $294.3 million recorded in the year-ago period.

The consensus prediction of analysts had been for a 17 percent year-over-year improvement in fourth-quarter sales, according to First Call, which tracks earnings.

The outlook now is for a slight loss for the quarter, Chief Financial Officer E. Stanton McKee Jr. told analysts. First Call consensus previously called for a break-even fourth quarter.

Many Wall Street observers were not surprised by a lower fourth-quarter forecast.

"This one came off largely as expected," said Miguel Iribarren, analyst with Wedbush Morgan Securities. "EA has always put out a pretty honest market forecast. They haven't been overly optimistic, and they haven't sandbagged, they haven't been overly pessimistic."

Shares of Electronics Arts rose $7.13, or nearly 18 percent, to $47.13 in late morning Nasdaq trading Wednesday.

Game software companies hoped for a boost from the North American and European launches of the PlayStation 2 by Sony, which originally hoped to ship 2 million units of the new device into the United States in the last three months of 2000. But Sony shipped just slightly more than 1 million, with much of that total coming near the end of the quarter.

"The next few quarters we expect to be uncertain, particularly in the U.S. and Europe with the PlayStation 2 situation," McKee said during the analyst call.

Electronic Arts, based in Redwood City, Calif., reported net income for the fiscal third quarter of $91.5 million, or 66 cents per share, excluding special charges. That was in line with First Call's earnings consensus.

However, third-quarter revenue of $640.3 million was 10 percent less than First Call's estimate of $710.45 million.

Revenue in Japan, where the PlayStation 2 has been available since March, increased 112 percent year over year. North American revenue rose 14 percent, and Asia-Pacific excluding Japan gained 17 percent. European revenue, which was also hurt by the weak euro, fell 10 percent from the comparable period a year earlier.

Waiting for Sony
Electronic Arts is at the mercy of Sony to ship hardware, said Paul Kaump, analyst with Dougherty & Co. "With the exception of Sony's problems, I'd say it was an excellent quarter for EA."

Excluding EA.com, Electronic Arts earned $124.6 million on revenue of $629.9 million. That core revenue represented a 5.6 percent increase from $596.3 million in the year-ago period.

EA.com in the third quarter lost $1.6 million, before special charges, as revenue increased 127 percent year over year to $11.2 million.

Including goodwill write-downs and noncash costs, Electronic Arts posted overall net income of $88 million, or 63 cents per share, in the third quarter.

Although Electronic Arts predicts slowness for the next few months, the picture should improve markedly in the second half of the year, Iribarren said. "These guys are so well-positioned," he said. "Starting this summer, you should see some pretty tremendous growth."

Iribarren and Kaump praised Electronic Arts' ability to quickly establish itself as the largest maker of software for PlayStation 2. Electronic Arts on Tuesday cited market research data indicating that the company commands 44 percent of the North American market for PlayStation 2 games.