Sat, Feb 01, 2003 page5

• Electronic Arts turns in stellar quarter as games sector shines

  • NY TIMES NEWS SERVICE
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  Buoyed by games such as Lord of the Rings: The Two Towers and Madden NFL 2003, Electronic Arts on Wednesday reported earnings that far exceeded Wall Street's expectations, showing continued dominance in the video game industry.

  In the company's third quarter, which ended Dec. 31, Electronic Arts said it had 11 games that sold more than a million copies, a remarkable result in a business where any game that sells over 750,000 copies is considered a major hit.

  But the positive news was tempered by the lower-than-expected performance of The Sims Online, an online cyberworld that Electronic Arts brought out last month. Industry analysts and Electronic Arts pinned big hopes on the game as a future growth market -- and a bellwether of consumer acceptance of online game playing in general.

  

  Buoyed by recent successes, Electronic Arts reported earnings that far exceeded Wall Street's expectations, showing continued dominance in the video game industry. ``The Sims,'' pictured, is the best-selling computer game series of all time, with some 20 million copies having been sold.

  PHOTO: NY TIMES

  The game has attracted 82,000 registered players, who pay US$9.95 a month, which is "behind where we thought we'd be," said Warren Jenson, the company's chief financial and administrative officer. He did not say what the company's expectations had been, but said the growth and financial performance were "not acceptable to us."

  Suggesting the company has growth plans beyond The Sims, Electronic Arts also announced Wednesday that it has filed with the Securities Exchange Commission for a universal shelf registration -- a regulatory requirement when a company intends to take out a line of credit, and that is generally intended to pave the way for a company to borrow to make acquisitions. In this case, Electronic Arts said it intends to borrow US$2 billion.

  The sizable amount of the line of credit suggests that Electronic Arts may be seeking to buy a major competitor, like the game unit of Sega or Vivendi Universal Games, said Edward Williams, an analyst with Gerard Klauer Mattison.

  Industry analysts have speculated that Electronic Arts is vying with Microsoft to acquire Vivendi's game unit. Jeff Brown, a spokesman for Electronic Arts, declined to comment on that speculation.

  "I think they want a piece of Vivendi; I think they want Blizzard," said Williams, the analyst, referring to Blizzard Entertainment, which is part of Vivendi Universal Games.

  The company had a huge quarter, bolstered by holiday sales, said Shawn Milne, an analyst with the Soundview Technology Corp. "They blew away the numbers," he said.

  Electronic Arts posted third-quarter revenue of US$1.23 billion, compared with the US$1.13 billion consensus estimate of Wall Street analysts. Earnings per share were US$1.69, compared to a consensus estimate from analysts of US$1.57.

  The company attributed its success to a number of factors, including increased sales in every geographic region -- North America, Asia and Europe. Its gross margins -- which measures profits minus the cost of producing goods -- hit 55 percent, compared to 52 percent in the same quarter last year, and 56 percent in the quarter previous.

  The video game industry is heavily cyclical, with growth when new video game platforms are released. At present, the market is flush with new platforms, such as the Sony Playstation2, the Nintendo GameCube and Microsoft's Xbox, paving the way for big sales of software.
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