Game Maker Is Unfazed By Slow PlayStation Shipping.

Sony Corp.'s announcement that it wouldn't be able to ship as many units of its much-anticipated PlayStation 2 video consoles ahead of the holiday season roiled share prices of video game manufacturers, none more so than THQ Inc.

But the next day the stock shot back up 16 percent to $24.50 a share, buoyed by news that two industry analysts upgraded their investment ratings for the Calabasas-based company. Late last week the stock was holding steady at around $22 a share.

In the end, the Sony news "was such a non-issue," said THQ Chief Executive Brian Farrell.

Analysts agreed, and attributed the quick rebound to common sense. THQ is releasing only one PlayStation 2 title for the holiday season, and while sales should be affected by the delays in getting the Sony console on the shelves, the company is poised to do very well in 2001.

"The prospects are extremely bright next fall," said Michael Wallace, at UBS Warburg in New York, one of the analysts who upgraded THQ's rating. "Starting next year, we're going to go into another industry cycle, for the next five years. I don't think there's a lot of downside in the stock."

That cycle is largely determined by Sony, which introduced the first PlayStation in 1995 and is now the largest player in the video console industry. But Japanese rival Nintendo is bringing out a new model next year, and Microsoft Corp. is releasing a system of its own in 2001 as well. Japan's Sega Entertainment released its new Dreamscast system late last year.

As a result, this year has been essentially the tail end for many game makers, since consumers have been reluctant to buy products until the new machines come out. That was reflected in THQ's second-quarter earnings. For the three-month period ended June 30, the company posted a net loss of $7.7 million (41 cents per diluted share), and wrote off almost $10 million in titles it decided not to issue because of lack of demand.

"It's been a transition year," Farrell said. "That being said, if we can do what we think we can do for the rest of the year, we'll have our second-biggest year ever."

So he is "comfortable" with industry estimates that THQ will post earnings of $1.14 a share for the full fiscal year, second best in company history. Only 1999 earnings of $1.63 a share were better.

But industry sluggishness forced the company's stock down in the first six months of the year, hitting a yearly low of $7.63 a share in May.

The prospect that the holiday season might bring improved earnings kept the stock moving steadily up after that. It reached a high of $26.75 a share in mid-September before Sony announced on Oct. 26 that it would ship only 500,000 PlayStation 2 units to North America, instead of the original estimate of as many as 1 million.

"We were thinking they'd ship 750,000 to 800,000 units," Farrell said. "But Sony still has a hard target of 100 million units worldwide. We're licking our chops at the prospect of 100 million units."

Currently, there are about 72 million of the original PlayStation units worldwide, with around 25 million of them in the United States. Farrell estimates that eventually there will be as many as 37 million of the new systems in the United States.

As a result, THQ is hoping to upgrade its image as more cutting edge than it is now, through its PS 2 games. The company is known for its mass-market approach, centered around popular World Wrestling Federation, Championship Motocross and "Rugrats" titles, made for the PlayStation, Nintendo 64, hand-held Nintendo GameBoy and Sega consoles.

"THQ is not known for producing for hardcore gamers, but (for) producing must-have titles," said James Milke, West Coast editor for industry magazine Electronic Gaming Monthly. "They produce games that sell by the truckloads at Wal-Mart."

In the next breath, however, he praises the company's new PlayStation 2 title, a fantasy role-playing game called "Summoner." That game is set to debut when PS2 comes out in late October. Another title for the new system, "Red Faction," will be released in early 2001.

"They've invested considerable money for these (new games)," Milke said "They're putting out some good titles."