EA swings to Q2 loss

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SAN JOSE, Calif. -- Video-game software publisher Electronic Arts Inc. posted a fiscal second-quarter net loss Thursday as sales fell, but the company said it expects a "great" holiday season, and its shares climbed 4% after hours.

For the quarter ended Sept. 30, EA posted a net loss of $195 million, or 62 cents per share, compared with a profit of $22 million, or 7 cents per share, in the same period a year ago.

The company attributed part of the loss to a change in how it accounts for sales of online-enabled games, now recognizing the sales on a deferred basis over an estimated service period.

Adjusted earnings, excluding the change in revenue recognition and other items, were $87 million, or 27 cents per share, up from $65 million, or 21 cents per share a year earlier. On that basis, EA beat Wall Street's earnings expectations. Analysts, on average, were expecting a profit of 20 cents per share, according to a poll by Thomson Financial.

Revenue, however, fell short of Wall Street expectations. Sales fell 18% to $640 million in the second quarter from $784 million a year ago, well below the $896.2 million that analysts were projecting.

For the third quarter, EA forecast adjusted earnings of 75 cents to 95 cents per share on sales of $1.33 to $1.58 billion.

Analysts were predicting earnings of 94 cents per share.

EA said it expects to close "certain facilities," including one in Chertsey, England, and will relocate or eliminate jobs. The company said the overall restructuring will save it $25 million to $30 million a year on a pretax basis.

Shares closed at $58.74, down $2.38 or 3.9% but rose $2.46 in after-hours electronic after the quarterly report's release.

Redwood City-based EA, the world's largest third-party video game publisher, has been criticized this year for not investing enough in games for the Nintendo Wii, which has become a runaway best-seller among the three major game consoles.

EA's chief financial officer Warren Jenson said the company has worked to change its lineup and is set to have seven titles for the Wii in time for the holidays as well as five titles for the popular Nintendo DS gaming handheld. And more are planned.

"We were late to the Wii, but this year, we plan to launch 10 to 15 games for the Wii and DS," Jenson said in an interview. Currently, EA is the biggest third-party developer for the Wii, he said, but the company knows there is stiff competition in the arena. "So we're still building on that and we know we have a long way to go," he said.

In a conference call with analysts, EA officials projected that sales for the overall industry in North America and Europe for 2007 will grow 15% to 20%.

For EA's own fiscal year, which ends in March, the company predicted sales between $3.35 billion and $3.65 billion, up $150 million from its previous guidance. Adjusted earnings are expected to fall between 85 cents per share and $1.15 per share, reflecting a decrease of 5 cents per share stemming from the impact of its proposed acquisition of BioWare Corp. and Pandemic Studios.

Analysts were projecting adjusted earnings of $1.15 per share on sales of $3.77 billion.

EA, which built a foundation on hit franchises such as "The Sims" and "Madden NFL" and on publishing other games licensed from other creators, is looking to boost growth by expanding its portfolio of self-owned properties.

Its pending acquisition of Pandemic and BioWare, in a deal worth about $860 million, was part of that expansion. The deal -- the largest in EA's history -- was announced last month and is expected to infuse the company with fresh creative talent in the role-playing, action and adventure genres where EA admittedly lagged rivals.
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