EA writes down value of Jamdat by $368 million

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In its Q3 conference call, Electronic Arts has announced that it is taking a goodwill impairment charge in its wireless business of $368 million.

I take “its wireless business” to mean Jamdat, which EA acquired in 2005 for $680 million. The impairment means that EA now values Jamdat at closer to $294 million, less than half the price it paid for it. Notwithstanding the write-down, EA’s Chief Financial Officer Eric Brown said “this highly profitable business is meeting our expectations in FY09 and we expect continued strong growth in the years ahead.”

So why the charge.

My guess is that there are some questions about the intrinsic value of the goodwill in the Jamdat business (its brand, intellectual property and so on), and so EA thought it prudent to write it down to a lower figure. At the same time, perhaps EA views this economic downturn as an opportunity to clean up its balance sheet, in the same way that it is using the recession as an excuse to prune out unnecessary SKUs, shift employment to low-cost locations and shut down whole facilities.

Which overall means that EA is likely to emerge from the downturn stronger, and is probably a good move.

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