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THQ Reorganizes Units, Looks to Future

thq repair metueIn the hit or miss world of video games, the last fiscal year was an unequivocal miss for Agoura Hills based THQ.  The company came up $431.1m short on a GAAP basis (or lost $101.8m in Non-GAAP terms) when it reported its full year results in May (release).  It was a “challenging” year as CEO Brian Farrell called it, to say the least.

The current fiscal year may be shaping up to be a little more positive.   In November 2008, the company announced a multifaceted plan to refocus on a narrower slate of premium titles and reorganize its business structure to allow more efficient operations.  24% of the company’s workforce (600 jobs) was cut in the following months and approximately $220m in expenses were pared off.   The company also added a new credit facility in May to provide a safety net for any working capital issues.

Today, in what likely completes one of the final steps left in the business realignment, THQ announced it will reorganize its development units into a new structure.  Similar to a move made by Electronic Arts in 2007, THQ will now manage its studio groups from a few genre-specific units.  The general manager of the three new units will report to the CEO.

Danny Bilson, formerly the Senior Vice President of Creative Development, will head a Core Games Group focused on THQ’s core gaming product portfolio including shooter, strategy, action, racing and fighting games.  Doug Clemmer, who managed THQ Wireless and ValuSoft businesses, will head a new Kids, Family and Casual Games unit.   Online Games will be supervised by Steve Dauterman out of THQ’s Asia Pacific regional headquarters.  Dauterman previously was Senior Vice President of Product Development for the region.

THQ first half calendar 2009 stockAt the E3 gaming conference in early June where the spotlight was on the games and not the books, the buzz about THQ was high.  The company’s product pipeline generated some chatter and drew a few raves.   Since the show, with the support of strong May retail sales data behind them, several analysts have taken up the cause too. THQ’s stock jumped in the early days of June (see chart).

THQ’s outlook does look to be improving but it’s probably a little too early to frantically wave a flag of support.  While the company’s UFC title was May’s champ, a knockout at retail, the license fee structure for the title might limit some of THQ’s earnings upside (“might” being the operative word since the nature of any revenue sharing relationship between THQ and partner is not immediately clear)

Looking to the rest of the year, with owned-IP like Red Faction and Darksiders, those kinds of licensing issues won’t be even a potential factor but another area that may be a cause of concern is development expenses.    Red Faction: Guerrilla, which debuted this month, is likely to be million unit seller by year end but rumors have speculated development costs for the game may have been as high as $25 to $35m.  There were reports during the development cycle that outside help had to be hired to port the game to the PS3.   Thatand other expenses are thought to have added up.  If the rumored range is accurate, that kind of expense could drag on any earnings potential.

THQ looks to be a company on the mend but it may be the next fiscal year, and not the current one, when the improvements really appear.  In the gaming sector, THQ is a company to watch.

In other THQ news….  Gamasutra has reported a confirmed report that the company signed a lease on 33,000 square foot office space is Austin, Texas for its Darksider’s development studio, Vigil Games.

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