REDMOND, Wash. (

TheStreet

) -- So,

Microsoft

(MSFT) - Get Report

says that it has

no plans

to buy video game maker

Electronic Arts

(ERTS)

, ending months of speculation that the two firms were preparing to ride off into the sunset together.

The news, however, is hardly a bolt out of the blue. Industry observers had already warned that the deal would be more trouble than it is worth, particularly given EA's close relationship with Microsoft rivals

Sony

(SNE) - Get Report

and

Nintendo

.

"It makes no sense for one of the big hardware manufacturers to acquire one of the big software manufacturers," Todd Greenwald, senior analyst at Signal Hill Capital Group, told

TheStreet

late Wednesday. "There's no way that Microsoft is going to develop games for the PS3 or the Nintendo Wii."

With more than 50% of EA's revenue coming from Sony and Nintendo, an acquisition would have caused turmoil in the gaming sector, he added, explaining that it could also have raised antitrust concerns.

A

Reuters

report, citing information from traders, circulated Wednesday saying the software giant was interested in buying EA, the publisher of the

Madden

,

Medal of Honor

and

FIFA

video game series.

The rumor forced EA shares up Wednesday, although they retreated in pre-market trading Thursday, falling 43 cents, or 2.17%, to $19.40.

Microsoft shares rose 18 cents, or 0.70%, to $25.89 in pre-market trading.EA is not the only video game maker that has been attracting

M&A

chatter this week. Acquisition speculation has also swirled around

THQ

(THQ) - Get Report

, publisher of the

UFC 2009 Undisputed

game, with

Time Warner

(TWX)

and

Viacom

(VIA) - Get Report

mentioned in the press as possible purchasers.

Greenwald, however, says that actual deals, such as

Adobe

(ADBE) - Get Report

's

acquisition

of

Omniture

(OMTR)

, and

Dell

(DELL) - Get Report

's

merger

with

Perot

(PER) - Get Report

, tend to be much more stealthy.

"If you look at the biggest deals of the last few weeks, there has been no rumor of them," he said.

U.S. video game sales

fell

in August for the sixth straight month, according to figures from NPD Group, and analysts highlighted

disappointing

sales for the latest game in the Madden series.

EA, which was recently

downgraded

by Goldman, nonetheless has a potent weapon in its armory. The Redwood City, Calif.-based firm, which competes with

Activision Blizzard

(ATVI) - Get Report

and

Take Two Interactive

(TTWO) - Get Report

, recently launched

The Beatles:Rock Band

game, which is expected to be a top seller this holiday season.

-- Written by James Rogers in New York