Peripheral Maker Mad Catz Shows Reduced Profit

Mad Catz has released its financial results for the second quarter of fiscal year 2006, a period ending September 30, 2005. The quarter saw an increase in net sales, a posted $23.7 million that was 14.9% up from Q2 2005's $20.7 million, but lower gross profit, with $4.1 million that was a 19.5% drop from Q2 2005's profits of $5 million. The company attributed the decline in profits to an increased advertising budget, which grew 23% from the same quarter last year to $2.9 million. Successes during the period were its NFL-branded controllers, released simultaneously with EA's Madden 2006; becoming a peripheral licensee for the upcoming Xbox 360, particularly notable because Microsoft is locking out third-party controller manufacturers who do not license with them by using special security technology; distributing Real World Golf for PS2 in Europe and Pump It Up for PS2 and Xbox in the U.S.; and the release of its GameShark-branded controller and accessories. Mad Catz president and CEO Darren Richardson further commented both on the reasons for the drop in profits. "Despite the net sales growth driven by increased revenue from our European presence, video game titles and licensed products, we were unable to offset a decline in overall gross margins related primarily to higher demand for value-priced wireless controllers, the liquidation of slow-moving inventory, and our decision to reduce some prices and offer some price protection in the increasingly competitive U.S. market. We have implemented cost reduction initiatives on some of the high-volume, low-margin products that affect the margin mix and expect the impact of these changes will begin to take effect during November." He continued: "While we are looking forward to the November launch of Microsoft's Xbox 360 console, we anticipate modest sales contributions this fiscal year. We anticipate the real potential from this license will unfold as the installed base gathers momentum in calendar 2006. "