December NPD data delivers dose of reality

Fall hardware shortage at the retail level put quite the damper on December sales, according to NPD data cited by industry analysts today.

Month-on-month hardware unit sales were off 12 percent for December--and for the full year, unit sales slumped 7 percent. Year-on-year December sales saw Xbox hardware sales down 7 percent, PlayStation 2 sales down 50 percent, GameCube sales down 30 percent, and Game Boy Advance hardware sales remain flat.

Total software dollar sales were off just 1 percent in December, compared to December 2003. Total dollar sales of video games in December were $1.7 billion, according to NPD data.

By platform, analysts reported that PS2 software declined by 9 percent, Xbox saw increased software sales of 20 percent year-on-year for December, GameCube software sales declined by 9 percent, and all Game Boy software increased 12 percent. NPD tracked DS game sales as driving $35 million from sales of 1.1 million units.

Boris Markovich of TerraNova Institutional pointed out the winners and losers of market share, revenue-wise. "The biggest share gainers were Activision and Take-Two with 2.9 percent and 2.5 percent share increases, respectively. THQ gained 1.4 percent; Midway was flat, and Atari lost 1.4 percent. Electronic Arts was the biggest share loser dropping 4 percent."

Looking ahead to 2005, Mike Wallace of UBS said, "Heading into 2005, we are projecting software sales to fall 6 percent due to the transition. With a down year expected and with the run the video game stocks have had, we remain cautious on the group heading into this year."

PiperJaffray's Tony Gikas had his own assessment of the upcoming year, saying "Game publisher valuations are 6 to 12 months ahead of themselves. Our expectation is that the group needs a breather and will be range-bound near-term."

His recommendation to investors: "Maintain investments and add to positions on dips near term."

PiperJaffray views the sector growth at 20 percent during the next console cycle (2006-2010). Gikas says he "continue[s] to favor video game publisher stocks as a core long-term holding," singling out Electronic Arts and Activision as "favorite" long-term holdings.