Electronic Arts profit outlook disappoints

By Scott Hillis

SAN FRANCISCO (Reuters) - Top video game publisher Electronic Arts Inc (ERTS.O: Quote, Profile, Research, Stock Buzz) issued an annual profit outlook on Tuesday that fell short of Wall Street forecasts as a drive to improve quality jacked up costs. Its shares fell 3.7 percent.

The quality drive has been a centerpiece of Chief Executive John Riccitiello's strategy to bring growth back to EA after years of stagnation and increasingly tepid responses by gamers to its products.

Riccitiello, who has also sought to drive growth through acquisitions, reiterated his view that EA's $2 billion bid for Take-Two Interactive Software Inc (TTWO.O: Quote, Profile, Research, Stock Buzz) fully accounted for the strong debut of that company's "Grand Theft Auto 4".

Although EA posted higher-than-expected profit and revenue for its fourth fiscal quarter ended in March, analysts voiced concern with their first glimpse of management's forecasts for its 2009 fiscal year.

"EA for a few years was choosing the timing of the game over the quality of the game. Now EA's shifting to a model where quality is more important," said Evan Wilson, an analyst with Pacific Crest Securities.

"However, maximizing quality is not always maximizing profit," Wilson said. "This is a do-or-die year."

EA said it expected a profit excluding items of $1.30 to $1.70 per share, below the average $1.74 expected by analysts.

Of particular concern was EA's expected operating margin of 12 percent to 14 percent for the year, up from 8 percent last year but below the 15 percent many analysts had anticipated.  Continued...