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CORRECTION: "Guitar Hero" helps Activision rock Wall Street

Reuters - Friday, May 9

(Corrects name and firm of analyst to Colin Sebastian of Lazard

Capital Markets)

SAN FRANCISCO - Activision Inc posted a quarterly profit on Thursday that blew past expectations as demand for its "Guitar Hero 3" and "Call of Duty 4" video games offset an absence of new releases.

The two games, which were released late last year, drove Activision to a profit of just under $55 million, or 17 cents per share, more than triple the 5 cents per share expected by Wall Street on Reuters Estimates.

Revenue was $602.5 million, up 93 percent from a year ago and burying the average Wall Street forecast of $373.6 million.

"It's the ongoing popularity of 'Guitar Hero' and 'Call of Duty'. It just shows what can happen in terms of performance when you have blockbuster hit titles," said Colin Sebastian, an analyst with Lazard Capital Markets.

Shares of Activision rose 3.9 percent to $28.78 in extended trade from a close of $27.70 on Nasdaq, where they had gained less than 1 percent in the regular session.

Activision's results were the latest piece of evidence that the video game industry is shrugging off the concern about the broader economy weighing on other sectors.

"The video-game market fundamentals have never been stronger. There's no evidence that this growth will slow," Chief Executive Bobby Kotick told a conference call.

Activision's results came the day after rival Take-Two Interactive Software Inc said its criminal action game "Grand Theft Auto 4" had pulled in $500 million in revenue in its first week, making it one of the biggest entertainment launches ever.

"I think it's all about the games and if companies put out differentiated premium games then the gamers will scoop them up," said Signal Hill analyst Todd Greenwald. "It's as recession-proof as any business can be."

Activision also said that for its current first quarter, it expected earnings of 13 cents per share, excluding special items, on revenue of $500 million. Wall Street analysts, on average, have forecast 13 cents per share on revenue of $493 million.

But those forecasts do not include results from the games unit of France's Vivendi , which makes the popular "World of Warcraft" game and is merging with Activision in a deal expected to close by the middle of the year.

Activision plans three new "Guitar Hero" titles in 2008: one for Nintendo Co Ltd's DS handheld device, an edition focusing on U.S. rock group Aerosmith, and a product ahead of the holidays that many speculate will feature more instruments like drums.

The company also expects growth to come from movie-based games such as the upcoming animated film "Kung Fu Panda" and the new James Bond flick "Quantum of Solace."

Activision, which also makes the "Tony Hawk" skateboarding games and "Spider-Man" titles, competes with Electronic Arts Inc , which reports earnings next week, and France's Ubisoft

(Reporting by Scott Hillis; editing by Braden Reddall and Carol Bishopric)

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