Market Overview

EA Layoffs: Fact or Fiction?


Is Electronic Arts prepared to layoff 500 to 1,000 employees?

The company, one of the largest game developers and publishers in the world, has denied that it will announce mass layoffs, instead claiming that its end-of-year workforce will surpass its employee base at the end of 2011.

But what's the real story? What is really going on at Electronic Arts (NASDAQ: EA)?

"I think they're going through some rationalization of their staff and they're probably laying off some people and hiring people other places," Todd Mitchell, Managing Director of Equity Research at Brean Murray, Carret & Co., told Benzinga. "It seems that somebody's got word that there's going to be layoffs. So there's probably gonna be some layoffs. But EA said that they were also going to do some hiring.

"I think they're shifting assets around from their old packaged goods business to their new digital businesses. They're probably shifting some assets offshore, too."

When asked how he thought the staff rationalization might impact future projects, Mitchell said that he thinks it "reflects the continued de-emphasis of the core console business for new channels of distribution."

"I think that you're getting a lot of competition for eyeball time from other means of entertainment," said Mitchell. "I think you have kind of a core gaming market that's always been there, but you saw an expansion of that in this cycle -- particularly with the Wii coming into it and some other stuff. And now it's just kind of contracting as those people move onto forms of [entertainment]."

With regard to that shift, Mitchell said that he feels that EA is pretty determined in the social media space. "They have scale," he said. "They will be a player. They're obviously a really big dominant player. I think they'll be a force just because of the assets they put in place. We'll have to see how they play competitively over the long-term. And we'll have to see how that market evolves over the long-term."

Five years from now, however, Mitchell doesn't have any pie-in-the-sky predictions for social media. Rather, he is taking a more realistic look at the industry. "I think social media just gets blended into everything else," he said.

What other changes are ahead? "I think the console industry will not thrive," said Mitchell. "I do think it's not gonna whither away. Each [console manufacturer] has a different strategy. Microsoft (NASDAQ: MSFT) is definitely gonna shrink-wrap the 360 and try to add functions and features that are non-gaming to it so it becomes kind of a media center in the living room."

Mitchell said that it's not clear what Sony (NYSE: SNE) will do with the PlayStation 4, "and it's not gonna clear what Sony is gonna do period, right now."

"I think Nintendo (NTDOY) will try to release another dedicated, pretty specific game console," said Mitchell. "They'll layer on the other media functions but it will primarily be a game console. I think dedicated devices is a dwindling market. We don't have dedicated devices for handhelds now; I play games on my phone. I also communicate and surf the Web and do lots of other things on it."

Finally, Mitchell addressed the rumor that Electronic Arts and Valve were fighting for a deal with Nintendo to provide the online platform for Wii U.

"I think it really has a lot to do with how successful the next Nintendo device is," said Mitchell. "If it's not successful, it doesn't offer either one of them any kind of positioning. I don't think that there's any kind of clear, strategic conclusion that you can draw from any kind of partnership from those [companies] until you see what it is and how they execute on it."

Follow me @LouisBedigian

Posted-In: Brean Murray Brean Murray Carret & Co.Analyst Color News Rumors Management Analyst Ratings Tech


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