As every video-game aficionado knows, sometimes you have to sacrifice some of your powers in order to advance in the game.

That’s the strategy being undertaken by Activision Inc., publisher of video games including “Quake,” “Toy Story 2” and “Space Invaders.”

The Santa Monica-based company announced earlier this month it would implement a major restructuring to capitalize on the booming Internet game market and next-generation game consoles being introduced by Sony Corp. and Nintendo. Activision plans to shed some divisions and titles, and lay off some employees.

The April 7 announcement sent the company’s stock plummeting to a low of $7.63 a share that day, off from a 52-week high of $18.25 in January. And the downturn continued last week, with the stock falling below $7.

“I don’t think the market’s reaction to Activision was only related to what’s going on at that company,” said John Taylor, a video game industry analyst at Arcadia Investment Corp. “I think there’s a lot of investors who are feeling jitters about the video-game console transition, which is starting to raise its ugly head this year.”

Video-game technology goes through five-year cycles, experts say. In 1995 and 1996, Sony released its first version of Playstation, Microsoft Corp. launched Windows 95, and Nintendo 64 hit the market. This year, a new wave of platforms is arriving, including a new standard for the Internet game market, new platforms from Microsoft and Nintendo, and the U.S. release of Sony’s Playstation 2.

“You’re looking at four new things,” Taylor said. “It’s going to be a different world.”

Activision’s restructuring highlights the need for video-game publishers to keep up with technological changes, especially regarding the Internet, which is still a nascent platform for games.

“It was a move (Activision executives) felt they needed to make because they looked ahead, saw the market was becoming more competitive, and the Internet is becoming more important,” said Marina Jacobson, research analyst covering special entertainment at Bear, Stearns & Co. “All of (the game publishers) are looking at Internet strategies and have to be focused on that platform.”

Activision officials as of last week were taking the stock downturn in stride, saying it won’t impact the company’s current focus on restructuring for the next generation.

“We’ve acquired nine companies over the last three years. We’ve grown at such a quick speed, this is a way of positioning ourselves financially for future growth,” said Maryanne Lataif, spokeswoman for Activision. “The idea here is to position ourselves financially to be able to take advantage of the new platforms.”

For the third fiscal quarter ended Dec. 31, the company generated net income of $22.3 million (75 cents per diluted share), up from $15.74 million (61 cents) for the year-earlier period. That quarter has historically yielded the highest results, due to holiday sales.

But fiscal fourth-quarter results are not expected to be so rosy. As part of the reorganization, Activision will take $66 million in pre-tax charges for the quarter ended March 31. (The company plans to release its fourth-quarter earnings report in early May, and its annual report in the early summer.)

The restructuring will result in slightly lower revenues than anticipated, company officials said. Activision posted sales of $436 million for the fiscal year ended March 31, 1999. The company is projecting fiscal 2000 revenues of about $596 million, slightly less than previous estimates. Projections for fiscal 2001 are expected to show little or no growth, as the company focuses on reorganizing and developing products for the new formats.

As part of its plan to increase profit margins, Activision plans to shed operations that currently yield low margins or will not easily adapt to Internet or next-generation game consoles.

Analysts said Activision would also likely eschew one-shot deals to develop and publish a single title, and instead focus on winning contracts that would allow the company to develop comprehensive lines of games.

Ultimately, analysts say, Activision’s current stock performance will have little bearing on its long-term performance, and only time will tell if the company’s strategy is working.