Five years ago THQ was one of the videogame industry's biggest publishers. Today, the company is struggling to stay afloat.
The troubled game maker is facing a possible delisting from the Nasdaq stock exchange, announced the layoff of 240 employees Wednesday and slashed its CEO's salary in half for the next year as sales have plummeted. Further, last week the company announced plans to abandon the once lucrative children's licensed games business to focus on titles for a core audience.
It's a turbulent period of change for THQ and while Wall Street analysts aren't yet cutting their ratings, they're showing signs of skepticism about the company's future.
"We believe THQ continues to lack a critical mass of high quality games with multi-million unit sales status and has yet to show any ability to execute this console cycle," says Eric Handler of MKM Partners. "While we recognize the need to get smaller before growing again, we lack conviction in when (or if) that upturn may come."
THQ president and CEO Brian Farrell will be taking a 50 percent cut to his base salary, from $718,500 to $359,250, for a one-year period beginning February 13, 2012. Additionally, Farrell agreed to reduce the payment he will receive if he resigns or is terminated without cause to one-third of the previous amount.
The company hopes its restructuring, which it plans to detail on its earnings call with analysts Thursday, will help reverse its fortunes. This, however, is hardly the company's first effort to turn things around.
In 2008, for example, the company shut down 5 studios and cut 250 jobs, saying it had a new goal of "fewer, higher quality titles".
A year later, it said it planned to shift its aim away from the children's games it was best known for to focus on core gamers.
"We know how to do this," said CEO Brian Farrell at the time.
Months later, however, THQ signed a licensing deal with Dreamworks for a series of titles that failed to connect with the mass market audience.
And as recently as last August, the company reduced its headcount by 200 people and shut down two studios as part of a plan to once again move away from licensed games and focus on properties it owned. The language was similar (though less direct) to what the company announced last week. (At the time, THQ said it was "reducing" the number of licensed kids' games. The January restructuring did away with them altogether.)
Licensed games, historically, were one of the easiest ways to have a reliable stream of income. And THQ made a fortune through titles based on SpongeBob and anything attached to a Pixar release. That gravy train dried up, though — a victim of poor production quality and the explosion of dirt-cheap kids games on mobile devices.
The loss of that income has hit the company's stock hard. It's been under the $1 mark since December 8, 2011 (which led to the delisting warning) — and hasn't seen the the north side of $5 per share since March 2011. (Five years ago, shares were trading in the $34 range.)
The loss of income from kids' games certainly plays into that, but investors are also tired of the company's string of core titles that have shown initial promise, but fallen flat when they hit retail — games like "Red Faction," "Homefront" and "UFC Undisputed".
The most recent flop has been "uDraw". In early December, THQ lowered its Q3 revenue guidance nearly 25 percent due to weak sales of the drawing tablet and its related games for Microsoft's Xbox 360 and Sony'sPlayStation 3. That same game had been a success for the company on the Nintendo Wii.
The lack of a breakaway hit has led to plenty of skepticism about THQ's future. Michael Pachter of Wedbush Securities, in December, wrote he believed "THQ is at risk of running out of cash by the June 2012 quarter" after the company's reduced guidance.
"With another unprofitable year expected in FY:12 (its fourth unprofitable year in the last five years), we expect the company’s cash balance to become an issue if it is unable to turn a profit in the first half of FY:13," he said. "Given its declining licensed and core properties (apart from 'Saints Row'), and an uncertain release schedule next year, we remain unconvinced that FY:13 will be profitable."
Questions? Comments? TechCheck@cnbc.com
After a year marked by market share losses, a plunging stock price, and embarrassing network outages, embattled Research in Motion co-CEOs Jim Balsillie and Mike Lazaridis have stepped down from their operating roles at the company. Still, the BlackBerry maker's new CEO, recent Chief Operating Officer Thorsten Heins, is their handpicked successor; Balsillie and Lazaridis will remain actively involved in strategy at the board level.
RIM's board planned to announce the changes Monday morning, including the elevation of veteran board member Barbara Stymiest to chair, and the addition of Fairfax Financial Holdings CEO Prem Watsa to the board as its 11th member. Lazaridis will be vice chair, will head the new "Innovation Committee," and will continue to be a public face of the company.
It is the shuffling of Lazaridis and Balsillie, RIM's leaders for more than 20 years, into non-operating roles that's likely to command investor attention on Monday. In its release about the changes, RIM's board framed the move as an orderly succession that Balsillie and Lazaridis requested.
The move does seem somewhat abrupt, though, in light of Balsillie's statement on the earnings call five weeks ago that he and Lazaridis had just reduced their cash compensation to $1 per year, and that they were in the midst of a large-scale strategic review and "proposed transformation" that "could take some time."
Heins, the new CEO, told CNBC on Sunday night that he doesn't plan any sweeping strategic changes.
"This is not a turnaround company," he said after offering several figures showing that RIM revenues topped $5 billion last quarter, and it retains more than $1 billion in cash. "The company at the moment isn't valued as it should be, if you look at the financials."
In other words: He remains committed to the money-losing PlayBook tablet, which he sees as merely the first step in the rollout of RIM's BlackBerry 10 platform. He won't be embracing Android. He will continue to target both the consumer and enterprise markets. Phones with BlackBerry 10 will still arrive in late 2012. And he won't be selling off key assets like RIM's proprietary network.
"I truly believe — and the board is with me on this assessment — that we are very, very strongly positioned as an integrated, vertical player," Heins said. "There is no plan on my side or the board's side to sell any of these important, constituting elements of our future success."
What would he say to investors who have been clamoring for a significant change in RIM's strategy? Look at BlackBerry 10, due in handsets at the end of 2012.
"I would tell investors that this change already has happened on the product side, and might not be what the public was demanding. But you cannot just fall for public opinion because sometimes the Street is right, sometimes the Street is wrong. We have to do what is right for the company."
What's left, then, is how well RIM makes product deadlines and communicated to Wall Street. "This company has to move to flawless execution, and I think this is what I can bring to the table," Heins said. "A lot of frustration, frankly, is from giving dates to the market that are best intended dates and are aspirations."
Given the flurry of skeptical analyst reports that followed RIM's earnings release last month, Heins will face a tough crowd on the company's call at 8 a.m. ET Monday. Last quarter's revenue was down 6 percent year-over-year, and holiday quarter shipments were projected to be down sequentially.
Want to weigh in? Leave a comment or hit me up on Twitter @jonfortt .
Apple has not revolutionized the textbook. They have revolutionized the textbook distribution model.
The textbook industry has been waiting for its big digital revolution but so far, it's been slow going. Apple may be aiming to change that with an announcement that the company has planned for Thursday in New York City.
Intel has signed up Motorola and Lenovo to use its chips in smartphones this year -- a surprise that is the most consequential announcement of the Consumer Electronics Show so far from a stock perspective.
There's also more to this than meets the eye.
Yes, Intel CEO Paul Otellini had promised that Intel's Atom chips would make their debut in phones in the first half of 2012, but the chip giant had made similar vows in previous years and failed to deliver. Most recently, Intel's pact with Nokia fell through, mainly because Nokia abandoned the Intel-tuned Meego OS in favor of Microsoft's Windows phone .
With this latest announcement, Intel has not only signed up two partners, but two who are known for their hardware chops. Lenovo, while a novice in smartphones, has a thriving PC business and a valuable brand in China. Motorola is in the process of being acquired by Google .
How positive is this for Intel?
That depends. If the companies -- particularly Motorola, with its Q3 launch -- can build a premium phone for the U.S. market around Intel's chip, it could be the beginning of a crucial growth opportunity.
But there are considerable hurdles.
Aside from 3D, HDTV, and color, changes in television set technology have been slow and subtle over the years, but with today’s changing tech landscape, TVs of the not-so-distant future could be intuitive, interactive devices that “watch us.” With the annual Consumer Electronics Show just around the corner, let’s look at some of the ways in which we can expect TVs to change.
1. TVs Will Watch You and Learn What You Like to Watch
It might take some face recognition technology already being demonstrated in the latest version of Android (Ice Cream Sandwich), Apple’s iPhoto and even Facebook, combined with some machine learning and AI technology but imagine how useful it would be if your TV could watch you for a change, learning all about your viewing behavior including likes and dislikes. After becoming familiar with your TV viewing preferences, your TV could become a virtual assistant for you, recommending programs or incorporating recommendations from your network of friends.
2. TVs Will Understand Gestures and Voice
As long as your TV is watching you maybe it will apply gesture recognition technology similar to what Microsoft has developed for its Kinect game controller and allow you to interact with your TV by waving your hand or nodding your head and of course there’s always Apple’s Siri technology so you can have a dialog with your TV using natural language commands to instruct your TV what to do.
3. Recommendation Engines and Proactive Recording
The same recommendation technology we find so useful in web sites like Amazon , Yelp, Netflix , Retrevo and others will find its way into the TV of tomorrow. “Cloud,” recording of shows on a DVR may become less necessary however, for first run shows like news, sporting events and award shows there will remain a need to record shows and whether the DVR is built into your TV or it’s part of the cloud, your TV should be aware of what you record and what you end up watching so it can make recordings for you without you setting up the recording. A truly intelligent TV would record shows for you that you didn’t even ask to record or discover shows in the cloud that it thinks you might want to watch. In other words your TV could tell you, “I took the liberty of recording a new show I thought you’d want to watch.”
IBM says it's buying Emptoris, Amazon gets a bullish call, and Verizon customers finally get the Galaxy Nexus.
Let's have a look at what's driving the sector this morning:
Amazon's been initiated at outperform at Morgan Keegan, with a $210 price target, on expectations it can continue gaining share in North America. Likely to help Amazon gain share? Its scheme to get customers using their smartphones to comparison shop in the physical stores of rivals.
And Verizon's finally launching the Galaxy Nexus today -- the hotly anticipated flagship phone running the latest version of Android, dubbed Ice Cream Sandwich. Cost? $300 with contract.
As we begin to look ahead toward 2012, one of the biggest opportunities in technology is the business of Cloud computing. In fact, respected technology research firm Gartner just released its top 11 predictions for 2012 which included not only a strong forecast of increased revenue for the Cloud industry but also indicated that the game will change significantly in just a few months.