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EA takes the restructuring knife deeper
In its third quarter results yesterday, EA announced that it was to lose a further 100 jobs, raising the total to 1,100. The company gave some details on how it intends to manage costs aggressively over the next two years, and what has changed since the restructuring announced in October 2008:
- 12 locations are to be closed (EA previously announced that it intended to close 9 locations)
- An additional 100 jobs gone (we’ve added them to the Job Loss Tracker)
- Refocusing on low cost locations (19% of EA’s employees will be in low-cost locations at the end of FY2009, compared with 13% a year ago)
- Reduced SKU count, with 30% fewer titles to be released in 2010 than in 2009.
- Capital expenditure (capex) down by 40% from $110 million.
The implications seem to be:
- The redundancies will hit high-cost locations such as the US, UK and possibly Canada disproportionately.
- The only area of expenditure that EA is not cutting is marketing: the company is focusing on making fewer titles but promoting them more heavily
- With $44 million of capex going away, EA’s suppliers will see sales dropping. That could include suppliers of hardware (dev kits and PCs), software and particularly middleware. Of course, EA may not capitalise all of these purchases, but it certainly means that if your business is selling into EA, it’s going to be a lot harder.
It seems as if John Riccitiello (has anyone called him “John the Knife” yet?) is using the recession as an excuse to perform a much-needed pruning of the bloated beast that Electronic Arts had become. That includes a write-down of the value of Jamdat (which EA acquired in 2005 for $680million) by $368 million. The company will emerge from this with a tighter portfolio of games, a cleaner balance sheet, and a better corporate and management structure.
Recessions are an opportunity for companies to take tough decisions that are much harder to carry out when times are good. The trick is to cut the fat without damaging the muscle and bone underneath.