Electronic Arts Warns

Updated from 5:00 p.m. EST

Electronic Arts (ERTS) warned Tuesday that its sales and earnings in the holiday quarter -- the most important of the year for the video game industry -- will be "well below" its own previous outlook and the Street's expectations.

Company officials declined to give new earnings or revenue targets, but CFO Warren Jenson suggested on a conference call that sales could fall as much as the "mid-teens" percentage-wise in the quarter, compared with last year. Worse yet, Jenson said the company expects its troubles to continue into next year, affecting its fourth fiscal quarter, which ends in March.

"The demand curve has shifted abruptly," Jenson said on the call, adding, "We have no reason to believe this abrupt shift in demand will reverse itself."

Investors frowned on the announcement, as EA shares fell $1.96, or 3.7%, to $51.15 in after-hours exchanges following a trading halt.

In the holiday period last year, the company earned $375.1 million, or $1.18 a share, on $1.43 billion in sales. A hypothetical 15% drop would imply sales of $1.22 billion in the current period.

In contrast, analysts polled by Thomson First Call were expecting the video game software publisher to earn $1.17 a share on $1.47 billion in sales in its fiscal third quarter. EA had previously predicted that it would post a profit of between $1.15 and $1.25 a share -- or between $1.18 to $1.28 a share sans charges -- on sales ranging from $1.475 billion to $1.575 billion in the holiday quarter.

EA is still optimistic about the long-term future of the video game business, Jenson and company CEO Larry Probst said on the call. But in the meantime, the company is suffering from a number of issues related to the industry's transition to a new generation of game hardware, they said.