THQ Cuts More Workers Amid Financial Challenges

Video game publisher THQ Inc. said it will lay off up to 240 employees in the coming months as the company cuts costs in the face of poor-selling game titles and a string of quarterly losses. THQ, one of the largest video game developers in the world, has struggled to come up with a winning formula to bring in consistent profits. The company had two rounds of layoffs and closed development studios in 2011. The announcement this month of more job cuts at the Agoura Hills-based company followed a Jan. 31 notice from the NASDAQ threatening delisting from the exchange because its shares had sold at less than $1 for a 30-day period. And, on Feb. 2, THQ reported net losses for the third quarter ended Dec. 31, marking eight quarters of consecutive losses. Now observers are starting to question the company’s future and whether a bankruptcy or buyout is likely. Continued cost reductions are not a sure way to get to prosperity, said Michael Pachter, an analyst with Wedbush Securities, who follows THQ and other video game companies. “Cutting and more cutting is a recipe for going away,” Pachter said. “If you keep cutting your talent and revenue base it is a downward spiral”. In a filing with the U.S. Securities and Exchange Commission, THQ said the latest layoffs will cost $11 million in special charges with about $8 million as severance costs. Most of the layoffs will take place before March 31, the end of the company’s fiscal year. The company didn’t say where the layoffs would take place. During a conference call on Feb. 2 to announce third quarter earnings, senior executives said the disappointing results were the catalyst for re-evaluating the company from top to bottom. For the third quarter ending Dec. 31, THQ reported a net loss of $55.9 million, or 82 cents per diluted share on revenues of $305.5 million. For the same period in 2010, the company had a net loss of $15 million, or 22 cents per diluted share, on revenues of $314.6 million. The third quarter sales of the uDraw game tablet missed company forecasts by about $100 million and casual title sales were off by about $25 million, President and CEO Brian Farrell said. Going forward, THQ will be a smaller company releasing core games in the first person shooter and fighting genres with complementary online content to build gaming communities, Farrell said. • Headquarters: Agoura Hills • CEO: Brian Farrell • Employees: 1,750 • Market Cap: $49.31 million • PE (ttm): n/a • EPS (ttm): -$2.77 • Closing Price: (as of Feb. 1): $0.72 “We are focused on developing high quality titles with a nimble organizational structure to deliver the games to market,” Farrell added. THQ shares have dwindled in value over the past few years. On Feb. 1, 2010, shares closed at $6.06, and a year later on the same day, they closed at $5.76. On Feb. 1 of this year, shares closed at 72 cents. The company has six months to get its share price above $1 to avoid delisting from the NASDAQ. Video game sales in 2011 brought in $16.3 to $16.6 billion in sales, according to preliminary figures released by The NPD Group, a New York-based market research firm. Console games still account for the majority of new games sales and last year brought in $9.3 billion, an 8 percent decline over the $10.1 billion generated in 2010. Rumors of THQ filing for bankruptcy or being acquired swirled in the video game industry press in January. Similar rumors had surfaced in September 2009. Pachter doesn’t expect that another video game company will buy THQ outright because that is not how the industry has operated in the past. When game developers went bankrupt —Acclaim Entertainment, Interplay Entertainment Corp., Bam Entertainment, 3DO, and Midway Games — other companies stood waiting and then swooped in to buy specific titles, Pachter said. “I have seen it before and I have covered them all and no one stepped in (to acquire these companies,)” Pachter said. THQ has pared back its game offerings to find the right combination that will result in high revenues. The company’s recently announced plans to stop making console games based on licensed children’s brands from Nickelodeon, Mattel Inc., DreamWorks Animation SKG Inc., and The Walt Disney Co. During the conference call Farrell said that THQ would no longer make titles for the uDraw game tablet.