Lazard, Wedbush Applaud EA Restructuring Plans

In their latest investor notes, Wedbush Morgan's Michael Pachter and Lazard's Colin Sebastian have both come out strongly in favor of EA's recent restructuring plans, calling it a "signal that EA is getting serious about controlling the growth of R&D," with its new CEO "laser focused on cost control." EA said that had it had arranged new plans to organize itself into four distinct 'labels' - EA Sports, EA Games, EA Casual Entertainment and The Sims - to operate with dedicated studio and publishing teams in a new strategy that would "streamline decision-making, improve global focus, and speed new ideas to the market." "Many investors may remain skeptical about the company’s resolve and question whether it has the discipline to align its cost structure with revenues," said Wedbush's Michael Pachter. "We think that this announcement is intended to address those concerns. Notwithstanding the lack of any comments about imminent job cuts, we fully expect the new business unit leaders to immediately focus on “operational efficiency” and expect cost savings to result by fiscal year-end." Lazard's Colin Sebastian agreed, saying "We believe the restructuring was a necessary byproduct of EA’s rapid growth over the last video game cycle compounded by operational challenges evident during the recent console transition period." "Specifically," he added, "the new structure should effect greater accountability and productivity within the studios," and said that "we believe that the new structure could help diversify EA’s product slate with an expanded lineup of mass market products along with an increasing focus on smaller, yet higher-growth, EA Mobile & Pogo.com properties." However, Pachter said, "We think it is important to note several statements in the company’s press release and one important omission. The company stated that each business unit will have “dedicated studio and publishing teams”, signifying that the R&D function will be decentralized and that the business unit leaders will have the authority to determine the level of R&D spending on each game." "In our view," added Pachter, "the most important item in the press release is the omission of any mention about Paul Lee, the current head of R&D. It appears to us that Mr. Lee may have been reorganized out of a job. He has been in his position for about a year, following the departure of Don Mattrick last year, and in that brief period, we believe that EA game quality has improved." "However," he continued, "we think that Mr. Riccitiello is laser focused on cost control, given that the R&D budget has doubled during his three-year hiatus from EA, while revenues have grown by only around 5%." Pachter concluded, "In our view, the reorganization is a signal that EA is getting serious about controlling the growth of R&D. We expect to see gradual improvement in this area over the balance of the fiscal year, and anticipate that company management will be more outspoken about its attempts to enforce accountability throughout the organization in the coming months." [UPDATE: Despite Pachter's comments to the contrary, an EA representative has told Gamasutra that Paul Lee is still employed at the company. "Paul Lee is still with EA," said the representative. "Paul will serve as Senior Advisor to the CEO, assigned to special projects. He is one of the co-founders of Distinctive Software, the studio that became EAC and established EA's basis in internal development at scale. More recently, Paul led our Studios as the Worldwide President. Paul has been instrumental to EA's growth and we are happy that he will continue to add value to the company."]