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EA cuts jobs, scraps over a dozen game projects

9:30 PM on 11.09.2009 // Hamza CTZ Aziz

On the heels of today's announcement that Electronic Arts acquired social games developer Playfish comes some bad news. EA has cut 1,500 positions spanning multiple studios such as Redwood Shores, Black Box, Tiburon and Mythic. A press release from EA states that 1,300 of those layoffs are part of a restructuring plan that will also see the closure of several facilities.

The cuts will cost EA between $130 million and $150 million and will be completed by March 31, 2010. EA should see an annual savings of about $100 million from these cuts. Hit the break to get a look at lowdown on EAs earning and losses for those of you interested in the business side of gaming.

On top of the job cuts today, EA's John Schappert revealed during a conference call that over a dozen unannounced EA titles have been cut from production. Schappert wouldn't reveal what the games were but it can't be any more heart breaking than when we found out that Road Rash and Mutant League were canceled. I wonder if The Ripper was part of the cuts too.

REDWOOD CITY, Calif., Nov 09, 2009 (BUSINESS WIRE) — Electronic Arts Inc. (NASDAQ:ERTS) today announced preliminary financial results for its second quarter ended September 30, 2009.

Fiscal Second Quarter Results (comparisons are to the quarter ended September 30, 2008)

GAAP net revenue for the quarter, which includes the impact of deferred net revenue adjustments, was $788 million as compared with $894 million for the prior year. During the quarter, EA had a net revenue deferral of $359 million related to certain online-enabled packaged goods and digital content as compared with $232 million in the second quarter of the prior year.

Non-GAAP net revenue for the quarter was a record $1.147 billion, up 2 percent as compared with $1.126 billion for the prior year. Revenues were above street expectations. Sales were driven by the launches of FIFA 10, Madden NFL 10, The Beatles(TM): Rock Band(R), Need for Speed(TM) SHIFT and NCAA Football 10.

GAAP net loss for the quarter, including the impact of deferred net revenue, was $391 million as compared with a net loss of $310 million for the prior year. GAAP diluted loss per share was $1.21 as compared with GAAP diluted loss per share of $0.97 for the prior year.

Non-GAAP net income was $19 million as compared with a non-GAAP net loss of $20 million a year ago. Non-GAAP diluted earnings per share was $0.06 as compared with a non-GAAP diluted loss per share of $0.06 for the prior year.

“EA is performing well, with quality, sales and segment share up so far this year,” said John Riccitiello, Chief Executive Officer. “We are making tough calls to cut cost in targeted areas and investing more in our biggest games and digital businesses.”

“We met our second quarter expectations and delivered a record quarter for revenue,” said Eric Brown, Chief Financial Officer. “Today we are announcing a significant cut in our operating expenses and the acquisition of a leader in social games, Playfish.”

EA was the #1 publisher in North America and Europe fiscal year to date, with 21% segment share – up four points. EA had four of the top-ten games in both North America and Europe.

Business Outlook

The following forward-looking statements, as well as those made above, reflect expectations as of November 9, 2009. Results may be materially different and are affected by many factors, including: development delays on EA’s products; competition in the industry; the health of the economy in the U.S. and abroad and the related impact on discretionary consumer spending; changes in anticipated costs; expected savings and impact on EA’s operations of the Company’s cost reduction plan; consumer demand for console hardware and the ability of the console manufacturers to produce an adequate supply of consoles to meet that demand; changes in foreign exchange rates; the financial impact of the Playfish acquisition and potential future acquisitions by EA; the popular appeal of EA’s products; EA’s effective tax rate; and other factors detailed in this release and in EA’s annual and quarterly SEC filings.

Fiscal Year Expectations – Ending March 31, 2010

GAAP net revenue is expected to be between $3.6 and $3.9 billion.

Non-GAAP net revenue is expected to be approximately $4.2 to $4.4 billion.

GAAP diluted loss per share is expected to be between $1.20 and $2.05.

Non-GAAP diluted earnings per share is expected to be between $0.70 and $1.00 and EA expects to be profitable in both Q3 and Q4.

For purposes of calculating fiscal year 2010 GAAP loss per share, the Company estimates a share count of 324 million and for non-GAAP EPS, the Company estimates a share count of 326 million.

Expected non-GAAP net income excludes the following items from expected GAAP net income:

$500 to $600 million for the impact of the change in deferred net revenue (packaged goods and digital content);

$170 to $175 million of estimated stock-based compensation;

$55 million of amortization of intangible assets;

$120 to $145 million of restructuring charges;

$24 million of losses on strategic investments;

$14 million loss on lease obligation; and

($120) to ($170) million in the difference between the Company’s GAAP and non-GAAP tax expenses.

The above fiscal 2010 expectations do not reflect the financial impact of the acquisition of Playfish Limited, which is expected to be roughly neutral to non-GAAP expectations and increase GAAP loss per share by $0.15 to $0.25, due primarily to acquisition-related tax expenses, deferred revenue adjustments, additional stock-based compensation, and amortization of intangible assets. These preliminary estimates are based on currently available information and are subject to change.

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