Square Enix profits sinks, forecast unchanged

Dragon Quest VIII publisher reports a 67.7 percent year-on-year earnings decline, but retains outlook for fiscal year.

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TOKYO--Today, Square Enix reported its consolidated results for the nine-month period ended December 2005. The company's net sales were up 13.2 percent to 68.9 billion yen ($585 million) compared to the same period last year. However, its operating income fell 75.5 percent to 6.33 billion yen ($53.8 million), and its net profit declined by 67.7 percent to 4.29 billion yen ($36.5 million).

Square Enix attributed most of its financial difficulties to its primary business--games. The company had a profitable nine months, releasing a number of hits: Kingdom Hearts II, which shipped 1.1 million units in Japan since its release in December; Romancing SaGa for the PS2, which shipped 500,000 units (Japan: 450,000; USA: 50,000); and Dragon Quest VIII, which shipped 430,000 units in North America. However, the numbers couldn't match those of the previous year, when Dragon Quest VIII shipped 3 million units in its first three days of release in Japan. The segment's sales fell 43.3 percent to 21.2 billion yen ($180 million), and its operating income plunged 95.1 percent to 974 million yen ($8.28 million).

Square Enix's other operations also saw year-on-year declines. Sales in its online game division fell by 9.2 percent to 9.62 billion yen ($81.8 million), and operating income fell 15.7 percent to 3.75 billion yen ($3.19 million). Sales at its mobile content division rose by 17.5 percent to 3.66 billion yen ($31.1 million), but its operating income fell 26.4 percent to 736 million yen ($6.26 million).

Square Enix's publishing division saw a small decline due to the lack of large strategy guidebook releases, but it continued to make a profit from comic books. The segment's sales fell 9.5 percent to 6.97 billion yen ($59.3 million), and its operation income fell 23.7 percent to 1.85 billion yen ($15.7 million).

Square Enix's miscellaneous operations division was the only part of the company that saw a rise in operating income, due to the success of its DVD/UMD movie, Final Fantasy VII: Advent Children. Sales from the division rose by 209.8 percent to 6.55 billion yen ($55.7 million), and operating income rose by 250.3 percent to 2.15 billion yen ($18.3 million).

Square Enix's consolidated results for the nine months period include the fourth-quarter balance sheet from Taito, which became a subsidiary of Square Enix at the end of September. Taito's sales for the three-month period were 20.9 billion yen ($178 million), and it made an operating loss of 234 million yen ($1.99 million). Interestingly, Square Enix posts Taito's figures as its "Amusement Machine" division, which seems to be the role that Square Enix has planned for its new subsidiary.

Square Enix has not changed the outlook for its full fiscal year ending March 31, 2005. The company expects net sales of 136 billion yen ($1.16 billion), operating income of 28.5 billion yen ($242 million), and net profit of 17.5 billion yen ($149 million).

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