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Analyst: Summertime Woes or The Beginning of the End?

Post by Shirley , 2008-09-15 07:28:03 Source: Gamedaily Editor:Shirley

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August was slow compared to the growth we've seen in other months, and Deutsche Bank wonders if the weak U.S. economy is finally catching up with the industry.

 

With most analysts having expected software sales growth of twenty-something percent for August, when the NPD data for the month revealed software growth of "just" 13 percent, some saw this as a negative sign for the industry. Considering that hardware sales were nearly flat too, has the slumping U.S. economy finally put a chink in the "recession proof" armor of the video game industry?



Deutsche Bank's Jeetil Patel is somewhat concerned. In a section in his latest note called "Summer Time Woes... or the Beginning of the End?" he comments that the "sluggish August sales [will] lead to more caution ahead."



Patel continues, "After starting off with roughly 40-50% growth in the first six months, August video game sales came back down to reality with a hard dose of consumer spending woes. The interactive entertainment software sector came in weaker than expected, as evidenced by the 13% software sales growth for the month of August (after 41%Y/Y growth last month). Even hardware sales took a hit, only up 8%Y/Y in August, after double digit growth in the past 5 months, +17%Y/Y last month and 48% in August of last year. ... While August data came in light, we remain cautious on the video game space and believe a flight to quality will end up playing out better than a broad-based basket approach to the video game names."



And while NPD's Anita Frazier acknowledges that this was the first month in 27 months in which the industry posted single-digit percentage growth (9%), she's still expecting the industry to have a big fall/holiday and a huge year overall. "Despite smaller growth this month, the industry is up 32% year-to-date and remains on target to achieve annual revenues in the range of $22 to $24 billion," she said.

 

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