With sales of current-generation software slowing, software publishers might now have to wait longer -- and go through a tougher transition period -- before seeing sales rebound.

That realization is why the publishers' stocks sold off further on Tuesday even after dipping in previous recent sessions, said one portfolio manager, who asked not to be named.

"Clearly people are nervous now, as they should be," said the portfolio manager, whose firm is not currently involved in the video-game stocks.

Should the soft sales trend continue, Activision could be the company most at risk, said the portfolio manager. Activision has nine new titles out for the PlayStation 2 this holiday season and three for the Xbox 360, meaning that the company was making a bet on strong sales.

"People are not buying the PS2 stuff, so they're getting hurt," said the portfolio manager.

But Tony Ursillo, a buy-side analyst at Loomis Sayles, believes Activision's problem is not the weak overall software market, but worse-than-expected games. True Crime: New York City has gotten fairly poor reviews, while those for Gun, a new Western-themed title, have been somewhat average.

"If they had been better products then this seasonal issue or console transition would matter less," said Ursillo, whose firm has a long position in Activision.

The problem of being overexposed to slow sales of new games probably affects EA the most, said Ursillo, since the company has the broadest lineup. In contrast, the best positioned is probably THQ ( THQI), said Ursillo, who has no position in the stock. THQ doesn't yet have a title out for the Xbox 360, and the company's specialties are mainstream and kids games that tend to sell well to late in console cycles.

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