Activision Shares Dive on Profit Warning
Shares of Santa Monica-based Activision plunged 27% on Friday after the video game maker said a reorganization of its business resulted in a $66-million pretax charge in its fiscal year ended March 31 and it warned that fiscal 2001 earnings will be flat.
Activision said the reorganization will allow it to focus on producing games for next-generation video game consoles--such as Sony’s new PlayStation 2, Sega’s Dreamcast and Nintendo’s forthcoming Dolphin system--and for the Internet.
The changes will result in a pretax savings of about $11 million in its 2001 fiscal year, according to the company.
Activision shares closed Friday at $8.06, down $3, on Nasdaq. The stock fell as low as $7.63 during trading.
The company, which makes action video games such as “Zork Grand Inquisitor,” said that it will report net income growth of about 36% for its 2000 fiscal year compared with 1999, but that income for 2001 will be “in line with fiscal year 2000.”
Activision reported a profit of $15.3 million on sales of $436 million in its 1999 fiscal year. It ranked fifth in sales among video game publishers in 1999, according to market researcher NPD Interactive Services.
Meanwhile, Activision rival Midway Games warned that it will lose money in the first half of the year because video game fans who expect to buy the new Sony and Nintendo systems later this year are holding off on purchases. That pushed the Chicago firm’s shares down $5.88, or 41%, to $8.38 on the New York Stock Exchange.
Activision, which has acquired nine companies in the last five years, said it had begun consolidating two of its value software subsidiaries. Miami-based Expert Software will be folded into Head Games of Eden Prairie, Minn., and “substantially all of Expert’s employees” will lose their jobs, the company said in a statement.
Activision spokeswoman Maryanne Lataif declined to say exactly how many of Activision’s 791 employees will be terminated in the consolidation, but did say none of the layoffs will be in California.
The company also said it will cut back on the number of distributors it uses and increase its own direct-distribution system.
After reviewing its game lineup, Activision said it decided to discontinue several of its “non-core product lines” that can’t be turned into games for next-generation video game consoles or the Internet.
