Game Points: Game Console and Software Stock Update

Key points from Kaufman Bros. analyst Todd Mitchell's recent note to clients (for a full-length version of this report, click here).

Microsoft (MSFT) next-gen Windows Vista launched worldwide. The new OS features DirectX 10, a built-in game explorer start menu and cross-platform functionality. Players will be able to use their X360 controllers with their PCs to play Vista games and play online games on both PC and X360 platforms. Players using Vista will be able to connect to Xbox Live.

Sony (SNE) refers to eventual PS3 price cuts on conference call. Sony noted that costs for the PS3's launch were higher than expected, due to advertising promotions and production delays that led to air shipping. Sony thinks that it will recover and have its game division break even by March 2008. Sony said price cuts to some extent were factored in, but did not provide specifics

EA (ERTS) discusses its plans for Mythic MMOG. Dark Age of Camelot: Labyrinth of the Minotaur will be released in Europe in February. EA Mythic also plans free upgrades for the game every six months in place of expansion packs. EA Mythic also presented the human Empire and Chaos factions, two of six playable factions, in its upcoming Warhammer Online: Age of Reckoning.

Two Take-Two (TTWO) directors refuse to be re-elected. Todd Emmel, a member of the audit committee, stated that he will not be seeking re-election, due to time constraints and his relocation to Boston. Michael J. Malone indicated he will not be seeking re-election, due to personal reasons.

EARNINGS RESULTS

EA reported in-line fiscal 3Q07, guided down for 4Q07. Fiscal 3Q07 revenue was $1.28 billion, flat with a year ago and in line with guidance. GAAP EPS of $0.50 compared to guidance of $0.33 to $0.40. The bogey was higher sales of Need for Speed and The Sims, the latter at a pretty high margin contribution. EA guided down for fiscal 4Q07. Revenue is expected to be $550 million to $600 million and GAAP EPS losses are expected to be $0.17 to $0.12, for revenue of $3.025 billion to $3.075 billion and GAAP EPS of $0.15 to $0.20 for the year. EA said it will expand its DS SKU in fiscal 2008 to include Spore.

THQ (THQI) guided to 12% to 15% revenue growth in fiscal 2008. Fiscal 3Q07 revenue grew 33% to $476 million and GAAP EPS was $0.91 up from $0.71 a year ago. Fiscal 4Q07 guidance was reaffirmed at $146 million and GAAP EPS of $0.09, for $1.0 billion and $0.96 for the year. The key titles for fiscal 4Q07 are all PC titles (Supreme Commander, Titan Quest: Immortal Throne, and S.T.A.L.K.E.R.: Shadow of Chernobyl). Management guided to revenue of $1.12 to $1.15 billion and GAAP EPS of $1.11 to $1.21 for fiscal 2008.

Sony game division hit by heavy launch costs for PS3. Sales grew 5.6% to $3.6 billion and the division reported an operating loss of $0.44 billion compared to a profit of $0.56 billion a year ago. Sony shipped 1.84 million PS3s and 4.11 million PS2s, the latter down 23% from a year ago. PSP shipments dropped 72% to 1.76 million units. The global user base for PS2 and PSP is 115.4 million and 24.7 million, respectively. Software sales declined 16% for the PS2 to 78 million units while PSP sales grew 24% to 21.2 million. Sony reported PS3 software sales of 5.2 million units.