712515--6/12/2006--ELECTRONIC_ARTS

related topics

{regulation, change, law}

{property, intellectual, protect}

{product, market, service}

{customer, product, revenue}

{stock, price, operating}

{operation, international, foreign}

{gas, price, oil}

{investment, property, distribution}

{acquisition, growth, future}

{product, liability, claim}

{financial, litigation, operation}

{competitive, industry, competition}

Our industry is cyclical and is in the midst of a transition period heading into the next cycle. During the transition, we expect our costs to continue to increase, we may experience a decline in sales as consumers anticipate and adopt next-generation products and our operating results may suffer and become more difficult to predict. We expect the average price of current-generation titles to continue to decline. Our platform licensors set the royalty rates and other fees that we must pay to publish games for their platforms, and therefore have significant influence on our costs. If one or more of the platform licensors adopt a different fee structure for future game consoles or we are unable to obtain such licenses, our profitability will be materially impacted. If we do not consistently meet our product development schedules, our operating results will be adversely affected. Our business is subject to risks generally associated with the entertainment industry, any of which could significantly harm our operating results. Technology changes rapidly in our business and if we fail to anticipate or successfully implement new technologies or the manner in which people play our games, the quality, timeliness and competitiveness of our products and services will suffer. Our business is intensely competitive and hit driven. If we do not continue to deliver hit products and services or if consumers prefer our competitors products or services over our own, our operating results could suffer. If we are unable to maintain or acquire licenses to intellectual property, we will publish fewer hit titles and our revenue, profitability and cash flows will decline. Competition for these licenses may make them more expensive and increase our costs. If patent claims continue to be asserted against us, we may be unable to sustain our current business models or profits, or we may be precluded from pursuing new business opportunities in the future. Other intellectual property claims may increase our product costs or require us to cease selling affected products. From time to time we may become involved in other litigation which could adversely affect us. Our business, our products and our distribution are subject to increasing regulation of content, consumer privacy, distribution and online hosting and delivery in the key territories in which we conduct business. If we do not successfully respond to these regulations, our business may suffer. If one or more of our titles were found to contain hidden, objectionable content, our business could suffer. If we ship defective products, our operating results could suffer. If we do not continue to attract and retain key personnel, we will be unable to effectively conduct our business. In addition, compensation-related changes in accounting requirements, as well as evolving legal and operational factors, could have a significant impact on our expenses and operating results. Our platform licensors are our chief competitors and frequently control the manufacturing of and/or access to our video game products. If they do not approve our products, we will be unable to ship to our customers. Our international net revenue is subject to currency fluctuations. Changes in our tax rates or exposure to additional tax liabilities could adversely affect our operating results and financial condition. Changes in our worldwide operating structure could have adverse tax consequences. Beginning in fiscal year 2007, we will recognize expense for stock-based compensation related to our employee equity compensation and employee stock purchase programs. The recognition of this expense will significantly lower our reported net income (or increase our reported net loss). Our reported financial results could be adversely affected by changes in financial accounting standards or by the application of existing or future accounting standards to our business as it evolves. The majority of our sales are made to a relatively small number of key customers. If these customers reduce their purchases of our products or become unable to pay for them, our business could be harmed. Acquisitions, investments and other strategic transactions could result in operating difficulties, dilution to our investors and other negative consequences. Our products are subject to the threat of piracy by a variety of organizations and individuals. If we are not successful in combating and preventing piracy, our sales and profitability could be harmed significantly. Our stock price has been volatile and may continue to fluctuate significantly.

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712515--6/12/2006--ELECTRONIC_ARTS_INC