Updated from May 9

Electronic Arts

(ERTS)

rallied Friday after posting strong fourth-quarter earnings and predicting a solid fiscal 2003.

The No. 1 independent video-game software giant blew past earnings projections Thursday evening. The company said diluted net income surged 53% to 33 cents per diluted share for its fiscal fourth quarter ended March 31. That compares with a loss of 13 cents a share in the same period a year ago.

EA followed the strong report with an equally bullish outlook for its next fiscal year.

The stock added $1.55 to $60.50 Friday morning after several Wall Street firms boosted earnings estimates and price targets.

Excluding charges, Electronic Arts reported net revenue for the fourth quarter of $469.7 million, compared with $307.3 million last year.

Analysts expected the company to report 28 cents a share, according to a poll conducted by Thomson Financial/First Call.

The Redwood City, Calif., company, which publishes popular titles such as the

Harry Potter

franchise,

Sim City

and

James Bond

, attributed the growth in the fourth quarter to strong sales for the latest generation console game machine.

Sony's

(SNE) - Get Report

PlayStation 2,

Microsoft's

(MSFT) - Get Report

Xbox, Nintendo's GameCube and Nintendo's Game Boy Advance launched in the prior quarter, fueling the thirst for new games in the latest quarter.

For the 2002 fiscal year, the company logged net revenue of $1.69 billion, compared with $1.32 billion in 2001. Net income was up to $101.5 million, from a loss of $11 million last fiscal year.

Gross margins for the quarter jumped to 54.4%, from 52.2%, with its core business gross margins actually up even higher at 56%, from 51% in the same period a year ago.

CFO E. Stanton McKee Jr. provided more bullish guidance for next year. The company projects top-line growth in the mid-20% range, with gross margins about the same or higher than the year just passed. Operating expenses are expected to be in the low- to midteens, while operating income is expected to jump to between 40% to 50%. Electronic Arts did not give specific earnings targets.

These aggressive projections are driven by expectations of a price war among the console makers, with Microsoft possibly cutting Xbox prices in time for the annual video game confab, the Electronics Entertainment Expo in two weeks.

"Looking ahead, we have much to be excited about," said Larry Probst, chairman and CEO of Electronic Arts. "The interactive entertainment industry is still in the early stages of what is anticipated to be the largest console cycle ever."

The numbers come on the heels of

Activision's

(ATVI) - Get Report

similarly rosy report Wednesday, a clear sign of the momentum in the gaming industry. These numbers were "not a surprise," said Felicia Rae Kantor, leisure analyst at Lehman Brothers. "It's going to be a really big year for the industry."