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Analyst: Expectations Down After PS3 Delay

Market analyst firm Wedbush Morgan Securities has lowered its recently released 2006 video game sales expectations for the game market after Sony's PS3 announcements today, but still expects overall U.S./European software growth in 2006.
Market analyst firm Wedbush Morgan Securities has lowered its recently released 2006 video game sales expectations for the market, following Sony's revised PlayStation 3 hardware quantity expectations and delayed European launch. In a research note released earlier today, the firm's Michael Pachter has forecast that: "U.S. and European software sales [are] to grow +2% in 2006, +15% in 2007, and +15% in 2008,” reflecting a slight 1% decline from yesterday's predictions. In addition, the note added that Wedbush 's prior forecast assumed that Sony would reach the retail market with 2.3 million PlayStation 3 units in both the U.S. and Europe in 2006, already down from previous expectations of 3 million. “Our revised forecast assumes shipments of 1.5 million to the U.S. (unchanged) and zero to Europe (down from 800,000),” wrote Pachter. “The impact on our European sales forecast is a reduction from +1% growth to –1% growth.” Wedbush also adjusted its 2006 worldwide PlayStation 3 hardware sales accordingly, lowering expectations from 3 million to 2 million. The firm also notes that the delay and inevitable hardware shortages this holiday season will result in a degree of “substitution effect”, resulting is higher sales of PlayStation 2, Xbox 360 and Wii hardware and software. Pachter concedes that Wedbush has not adjusted its expectations to reflect this effect, but adds that the company anticipates “25 – 50% of the shortfall in PS3 software sales (an estimated $124 million in Europe) will be offset by sales of software for the other platforms.” Looking to seven software publishers covered by Wedbush, the firm noted that it believes the impact of the PlayStation 3's European delay and hardware shortage in both North America and Japan will be “relatively small”. “In summary,” wrote Pachter, “we expect the impact on [Electronic Arts] to be between $10 – 15 million in revenue; the impact on [Activision] to be between $5 – 7 million; and the impact on [Take-Two] to be between $2 – 4 million. We believe that these amounts are so small as a percentage of revenue as to be insignificant.” In further notes released to investors, Pachter also added that other companies within Wedbush's portfolio, including THQ, Midway, Atari, and Majesco will not be impacted as none of these companies have titles slated for the console's launch. Similarly, the analyst does not expect any significant repercussions from today's news for major video game retailer GameStop. “The company’s guidance presumes U.S. shipments of only 1 million PS3s, and today’s announcement suggests that Sony will meet or exceed that figure. Only 7% of GameStop stores are in Europe, so the impact of a delay there is relatively insignificant, and will most likely be offset by higher shipments than expected (by GameStop) to the U.S.”

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