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Activision Decision to Drop PC Game Prompts Analysts’ Wrath

Activision Decision to Drop PC Game Prompts Analysts’ Wrath


Video game maker Activision Inc. has Wall Street in a huff.

Last week the Santa Monica video game company, which makes the popular “Tony Hawk Pro Skater” series, confirmed that it terminated development on “Return to Castle Wolfenstein: Enemy Territory” for personal computers. (It will still release the title on the Xbox and Playstation 2 consoles.)

The move was troubling to analysts since the original “Castle Wolfenstein,” released for PCs in November 2001, was Activision’s second biggest franchise last year. The game contributed $31 million the company’s annual revenue of $786 million that year, said Bill Lennan, an equity analyst with WR Hambrecht + Co. in San Francisco.

Lennan issued a note basically saying he was blindsided by the abrupt termination of a key release, and threatening to downgrade his existing “hold” rating to a “sell” if Activision doled out any additional bad news. At RBC Capital Markets, analyst Stewart Halpern went ahead with the cut, to “underperform” from “sector perform.”

“It’s not a lot of their revenues, but the issue with Activision right now is their ability to develop sustainable franchises beyond ‘Tony Hawk’ and ‘Spider-Man: The Movie,'” Lennan said. “The financial impact is not enormous. To me the bigger issue is what it says about product development.”

Officials from Activision did not return calls.

Activision has scored consistent hits with its “Tony Hawk” franchise, now in its fourth installment, but has yet to develop anything that would build on that success. In January, the company lowered its fiscal 2004 earnings guidance and scrapped nearly 30 percent of its new product slate. Analysts have expressed concern about the company’s prospects as the “Tony Hawk” and “Spider-Man” series mature.

Conor Dougherty

Important Date

On a tangential note, Activision competitor THQ Inc. has changed its fiscal year-end to March 31 from Dec. 31, so that the timing of its financial reports will be more closely aligned with its competitors.

THQ will report 2002 earnings on Feb. 19, and then will file a transition report for the three-month period ending March 31 in mid-April.

“We get about 50 to 55 percent of our sales in the fourth quarter, so a December year-end doesn’t follow our natural business year,” said Fred Gysi, THQ’s chief financial officer. “We collect a lot of cash in January and February, so when we’re on a calendar year-end, our receivables look higher and our cash looks lower than our competitors.”

Activision has a March 31 fiscal year-end, as does game heavyweight Electronic Arts Inc., based in Redwood City.

“We want our investors to be able to directly compare our results” with those companies, Gysi said.

Conor Dougherty

Continental Divide

If things don’t always go as planned, they sometimes turn out all right anyway.

That’s the case with Metzler/Payden, a joint venture of Los Angeles-based fund manager Payden & Rygel and its German partner, Metzler Bank.

The venture was launched in 1998, with the idea of getting U.S. investors interested in European growth companies, especially tech stocks. Initially it worked, but everyone knows how tech investments wound up. “That idea is dead right now,” said Soeren Rytoft, senior vice president of Metzler/Payden.

As equity prices fell, however, both here and worldwide, investors fled into the relative haven of fixed income securities bonds and the like.

In Europe, the choices for fixed income securities are limited, because the market is less developed. So European investors targeted U.S. bonds a traditional Payden & Rygel stronghold and Metzler/Payden attracted its share of the flow. The euro’s downward spiral against the dollar in the years after its launch accelerated the investment trend; the venture’s assets under management now stand at more than $1 billion.

For the past year or so, the euro has reversed course, and recently eclipsed parity with the dollar. (Last week, the euro was trading at $1.08.) Soon, Rytoft figures, more American investors will begin considering European equities as a diversification tool.

Last September, he moved to L.A. from Germany to set up five new European equity funds for U.S. investors. The funds, launched Jan. 1, include a European Emerging Markets Fund, meant to capitalize on European investment in the economies of 10 Eastern European countries that were accepted into the European Monetary Union in December. Their membership commences in 2004.

Eastern Europe, Rytoft said, is attracting Western Europe investment in factories because of its cheap labor. He sees opportunities in the financial sector and insurance in places like Hungary, Poland and the Czech Republic. He pointed out that after the last recession, in 1992, European stocks rebounded more quickly than the U.S., and geographic diversification might not be a bad idea for U.S. investors.

“We believe it’s about time for investors here in the states to begin looking at something else besides U.S. equities,” he said.

Anthony Palazzo

Lender Leaves

David S. Loeb, 78, has retired as chairman of Pasadena-based IndyMac Bancorp for health reasons, ending a career that included the founding of both IndyMac and Woodland Hills-based Countrywide Financial Corp.

Loeb and fellow New Yorker Angelo Mozilo co-founded Countrywide in 1969, building it into a regional mortgage lending powerhouse. Loeb is credited with the idea for Countrywide’s “company store” concept, which did away with mortgage salespersons, drawing customers into bank-like branch locations using advertisements.

In 1985, Mozilo and Loeb launched IndyMac as a mortgage real estate investment trust, investing in mortgages that Countrywide and others originated. Countrywide ran IndyMac under a management agreement until 1997, when the growth of both institutions turned them into competitors. IndyMac shed its REIT status in 2000, converting to a savings and loan, with Loeb retiring from Countrywide to remain its chairman. Mozilo, who is still chairman and chief executive of Countrywide, resigned from IndyMac’s board as well.

With Loeb’s retirement, IndyMac chief executive and vice chairman Michael W. Perry takes on the role of chairman, while shedding the vice chairman’s hat.

Anthony Palazzo

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