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Electronic Arts Fizzles Out

The game publisher posts a loss and sees dismal quarters to come.

Updated from May 3

Times have been tough for the video-game industry of late.

Electronic Arts

(ERTS)

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, the leading game publisher, predicted on Wednesday that things aren't going to improve anytime soon.

Indeed, the company said earnings for the fiscal year it just began would fall for the third straight year and come in far below analysts' expectations. The company's outlook is only the latest sign that what was supposed to be a relatively smooth transition to new game technology is proving to be anything but.

The problem EA and other publishers face is not only that it is far more complex and costly to develop games for the new systems, such as

Microsoft's

(MSFT) - Get Report

Xbox 360, than for the previous technology. Making matters worse, the business as a whole is becoming much more complicated, said EA CFO Warren Jenson in an interview with

TheStreet.com

.

Online games, games for cell phones and handheld systems, and global markets are each becoming important parts of the overall business, requiring increased investment and resources from companies such as EA that are already trying to ramp up production of games for the new consoles, he said.

Compared with past transitions, navigating this one has "become exponentially more difficult," Jenson said.

EA is investing in the future, and some of those investments, particularly in games for handhelds and mobile phones, are already paying off, he said.

But the ongoing transition troubles were evident even in this past quarter, a period for which EA's results surpassed the Street's expectations. Despite year-over-year sales gains, the company's bottom line swung from a profit to a loss. Weighing heavily on the company's results: charges related to a

recent restructuring taken in response to the changing market and amortization costs related to the

acquisition of

Jamdat

, a move EA made to become a major player in the market for mobile phone-based games.

Although this transition period has proved to be much more difficult than expected, investors have

largely stuck by the sector's stocks, banking on better times ahead.

But investors appear to have lost confidence following EA's report. In early Thursday trading, EA's stock was off $5.61, or 10.3%, to $48.89. Shares of EA rivals

Activision

(ATVI) - Get Report

and

Take-Two Interactive

(TTWO) - Get Report

also were lower.

In the just-completed period, EA lost $16 million, or 5 cents a share, on sales of $641 million. In the same period a year earlier, EA earned $8 million, or 2 cents a share, on $553 million in sales.

Excluding restructuring, acquisition and foreign-earnings repatriation costs, EA would have earned $43 million, or 14 cents a share.

That result topped analysts' estimates. On average, Wall Street was expecting the company to earn 9 cents a share on $581 million in sales, according to a survey of analysts by Thomson First Call.

In February, EA

forecast a loss of 15 cents to 23 cents a share -- or, excluding expenses, a profit of 6 cents to 14 cents a share on sales ranging from $550 million to $600 million.

But for the seventh quarter in a row, EA offered a dour outlook for the future.

In the current quarter, for instance, the company expects to lose 36 cents to 42 cents a share -- 22 cents to 28 cents a share excluding certain charges -- on sales ranging from $300 million to $340 million.

In contrast, analysts had previously predicted that EA would lose 19 cents a share in the current quarter on a pro forma basis on $411.9 million in sales.

In the same period last year, the company lost $58 million, or 19 cents a share, on $365 million in sales.

For the full year, the company expects its bottom line to range from a 15-cents-a-share loss to a profit of 15 cents -- or a profit of 35 cents to 65 cents a share sans expenses -- on sales between $2.7 billion and $2.95 billion.

Meanwhile, analysts had forecast earnings of 92 cents a share, excluding expenses, on $3.12 billion in sales.

Shares of EA closed regular trading off 4 cents, or less than 1%, to $54.50.