Napalm Riot

Things haven't been so easy for EA Games this past year. Last Halloween, the company, which is headquartered in Redwood City, California, had a share price of $61.12 and was doing well thanks to an acquisition of BioWare/Pandemic. However, now the share price has declined to $27.73, thanks in no small part to the economic troubles of the country as well as it's own internal troubles.

As a result of these troubles, many employees of EA Games are about to find themselves without a job. Six percent of the global workforce is being laid off in an attempt to cut costs for the company. For a company with 9,000 workers worldwide, the layoffs are removing about 540 people. According to executives, most of the layoffs will be in the publishing and corporate divisions, but some will come from the various studios and labels as well. There is a chance that this will not be the last round of pink slip handing outs. The eventual plan, according to executives, is to " manage head-count decisions aggressively going forward," and reduce hiring in high-cost territories to expand the lower-cost locations.

The company estimates that they will be saving $50 million annually from these layoffs, as they had a larger than anticipated loss of $310 million during the July-September quarter. This, of course, is in addition to the $195 million they lost in the same quarter last year.

The loss hits hard coupled with the fact that a 40% surge in quarterly revenue occured for EA. For the quarter, the company earned $849 million, up to $254 million from the same quarter in the previous year. best sellers for the period are Madden NFL 09 with 4.5 million copies worldwide, and Spore with 2 million units sold worldwide. The launch of Warhammer Online: Age of Reckoning was also big, with 1.2 million units sold and 800,000 online players. NCAA Football 09 sold 1.8 million copies and Tiger Woods PGA Tour 09 sold 1.9 million, which is the same number as Mercenaries 2: World in Flames. Rock Band and Rock Band 2 combined to sell 1.5 million units during the quarter.

In a statement, EA CEO John Riccitiello put a brave face on things. "Considering the slow down at retail we've seen in October, we are cautious in the short term," he said. "Longer term, we are very bullish on the game sector overall and on EA in particular. The industry is growing double-digits on the strength of three new game consoles and increases in the number of homes with broadband Internet connections. EA is well-positioned to benefit from these technology drivers due to the strength of our creative studios and our broad collection of game properties."

Part of the reason Riccitiello and other executives believe the company has had so many shortfalls is because of the postponement of Harry Potter and the Half-Blood Prince, which was slated for a late summer release but is now coming out in the summer of 2009 because the movie was delayed until then. Sitting on a finished game caused EA to have to move $120 million of it's revenue to the next fiscal year, and roughly $48 million of that was supposed to be in the July-September quarter when the game was originally to release.

International exchange rate issues cost EA 12 cents a share, which adds to the financial troubles, but a larger problem is the money they spend on investments in future ventures; such as over $100 million expanded development costs, $150 million in building a direct-to-consumer download business, $35 million in upfront expenses for EA Partners deals (which include publishing agreements with Epic Games, iD Software, Grasshopper Manufacture, and MTV/Harmonix for a rhythm game based on The Beatles.

All in all, I think EA has quite a hole to dig itself out of, and only time will tell if they can pull it off.

(Source: http://www.gamespot.com/news/6200329.html)