It may be another cheerless holiday season for video-game makers this year, two analysts suggested in downgrades Monday that pushed the sector down amid a broader market rally.

Shares of

Electronic Arts


fell 96 cents, or 2.2%, to $43.20 in recent trading after W.R. Hambrecht and Co. downgraded the stock to sell from hold, and U.S. Bancorp Piper Jaffray downgraded it to market perform from outperform.

W.R. Hambrecht also lowered its rating on

Take-Two Interactive

(TTWO) - Get Report

to hold from buy, pushing its shares down 10 cents, or 0.3%, to $32.

The downgrades also put pressure on rival



, which was down 30 cents, or 1.8%, to $16.60.


(ATVI) - Get Report

shed 14 cents before bouncing back, and was up 2 cents lately.

W.R. Hambrecht analyst William Lennan Jr. said in a note that preannouncements are inevitable among video-game makers in the weeks after Thanksgiving and predicted negative news will pressure all video-game stocks between now and the end of the year.

The problem, Lennan wrote, is that the Street is projecting 14% year-over-year growth in the December quarter and 4% year-over-year growth in the March quarter. But if the recent downward trend in sales continues, December sales could fall as much as 5%, though Lennan is projecting a tick upward to flat sales in December from a 3.5% decline in September.

While acknowledging EA remains the 800-pound gorilla of the industry, Lennan put a sell rating on the stock and a neutral on the other publishers he covers because of what he believes are overly optimistic expectations and valuation. Electronic Arts is trading at about 26 times Lennan's estimate for 2004 earnings. Before Monday's fall, its shares had climbed nearly 70% on a split-adjusted basis since the beginning of the year.

"ERTS has the toughest expectations to meet and the longest way to fall should it fail to meet those expectations, in our opinion," he wrote. His firm hasn't done any banking with Electronic Arts.

About half of EA's annual sales come during its December quarter.

Lennan said he believes the consensus revenue estimate of $1.47 billion for the December quarter implies a 24% climb in publishing revenue from last year, which will require the company to gain significant market share -- of more than 6 percentage points by his calculations -- if the market is flat from a year ago.

Yet, Lennan says EA's lineup is not as strong as a year ago, when it included such new releases as

The Lord of the Rings

while rivals




(ATVI) - Get Report



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(MSFT) - Get Report



, which lost share last year, are in better shape this year.

Lennan's downgrade on Take-Two also was based on his anticipation of negative news in the sector after Thanksgiving. After pushing out assumptions about sales of such Take-Two blockbusters as

Grand Theft Auto

as far as he could, Lennan said he still comes out short of the Street sales estimate of $409 million for the quarter ending in January.

Still, Lennan said he believes the company's and Wall Street's outlook on Take-Two in 2004 look conservative and suggested there may be a compelling buying opportunity if the negative news he anticipates knocks its shares to the range of $25 to $26. His firm hasn't done any banking with Take-Two.

U.S. Bancorp Piper Jaffray senior analyst Anthony N. Gikas also writes of concerns over holiday sales for the sector in his Electronic Arts downgrade. December is seasonally the worst month to own video-game stocks and a better buying opportunity in the group could be sometime between January and April, Gikas wrote.

Gikas is more optimistic about the December quarter than Lennan, projecting sales of video-game software will increase 14% in the December quarter from a year ago. But he, too, noted that results so far have been disappointing, with a 50% increase in the installed base of consoles this year resulting in a paltry 1.5% growth in software sales, according to The NPD group. Gikas noted that such weak sales have persisted since 2002 holiday software sales missed expectations by a huge margin.

He noted recent results and forecasts from

Toys R Us



Electronics Boutique




(GME) - Get Report

also have been below expectations.

Still, Gikas adds, "We remain confident of EA's strategy and management's execution and think near-term results will meet our Street high EPS expectations, although outperformance is not likely." His firm has done banking business with Electronic Arts.