Electronic Arts has reported a 31% drop in profits, as the cost of developing games for the latest generation of video consoles continued to bite.
Electronic Arts is investing in new games to replace previous hits
The world's biggest video games maker said net income in the three months to December fell to $259m (£146m), from $375m in the previous year.
Electronic Arts warned that 2006 would remain a challenging year for the firm.
The video games industry is in the middle of a drawn-out transition to the next generation of console technology.
Microsoft launched its long-awaited Xbox 360 console in November last year, but a shortage of supply in North America has been blamed for a slowdown in consumer spending on games.
Industry leader Sony is not expected to launch its new Playstation 3 machine until at least spring, while rival Nintendo's Revolution games console is due for release later in the year.
Electronic Arts, whose past gaming hits include The Sims, said total sales dropped by 11% to $1.27bn in the third quarter, from $1.43bn in the previous year.
The US company said it would continue to invest in next-generation console games, but warned it expected software sales across the industry to be flat over the coming year.
Earlier this week Electronic Arts said it was cutting just under 5% of its 7,000-strong workforce.