Activision warns of "significantly lower" earnings

Announcement puts stock into freefall in after-hours trading; publisher blames underperforming portfolio of holiday releases.

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Hot on the heels of NPD's bleak report on November game sales comes a stark earnings warning from a top third-party publisher. Following the end of trading in New York this afternoon, Activision issued a press release that told investors to brace themselves for quarterly and annual earnings lower than the company's November 2 forecast. The warning comes despite Activision's 54 percent year-on-year increase in sales during November.

"For the quarter, we still expect to generate significant revenues," Activision CEO Michael Griffith said in a statement. "However, we are disappointed that our earnings performance will come in substantially below our previous outlook."

Activision blamed its fallen fortunes on two factors. First, the overall lull in the game market during the 2005 holiday season. "For the October/November period, US software sales were down 20 percent," the company said in a statement, slightly overstating NPD's report of an 18 percent decline. Activision went on to say that "sales in the month of December are tracking below company expectations" and that large "competitive pricing" and marketing expenditures would "disproportionately" affect its bottom line.

The second culprit Activision cited for its lowered outlook was an enemy within. It acknowledged that "overall the company's portfolio of products are not selling as well as had been anticipated." Activision's press release also said that it "expects lower than anticipated reorders of its most profitable titles."

So which of Activision's titles are to blame for its lowered guidance? While the publisher didn't name games, analysts singled out two of the company's fall games as being lackluster: The multiconsole and PC title Gun, which NPD said sold only 225,000 copies, and True Crime: New York City, which moved a paltry 73,000 units on all platforms.

On the next-gen front, Activision's rush to make four of its games Xbox 360 launch titles seems to have yielded mixed results. On the one hand, Call of Duty 2 was the best-selling Xbox 360 title, boasting a 77 percent attach rate to the console. On the other hand, the poorly reviewed 360 versions of Gun, Quake 4, and Tony Hawk's American Wasteland were not among the top five games for the new platform.

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