The growing menace of cyber hacking has found its new victim in Electronic Arts Inc. (ERTS) this time, as the company’s website reported that hackers have stolen user information. The video game maker reported the breach in its BioWare division as “highly sophisticated and unlawful.”
Hackers breached the servers related to “Neverwinter Nights,” produced by BioWare Edmonton, and supposedly stole user names, encrypted passwords, email addresses, mailing addresses, names, phone numbers and birth dates. However, the company confirmed that no credit card data or Social Security numbers were compromised.
Meanwhile, Electronic Arts is said to have identified and secured the hacked server and started an internal investigation relating to the breach.
It seems that hackers have been targeting the video game publishers for a while, and Electronic Arts is the latest addition after Sega Sammy Holdings Inc reported theft of information related to 1.3 million users. Separately, Sony Corp. (SNE) is still reeling from the huge attack on it, when data related to more than 100 million users was compromised last April.
Looking back, the recent cyber attacks have affected private as well as government sectors alike. Hackers have run amok by stealing data from high profile companies such as data storage provider EMC Corp. (EMC), defense contractor Lockheed Martin Corp. (LMT) and internet search provider Google Inc. (GOOG).
Earlier in June, financial companies like Citigroup Inc. (C) had confirmed that around 360,083 North America Citi-branded credit cards were hacked. The International Monetary Fund (IMF) had also faced such attacks from hackers. The attack on the IMF led the World Bank to sever its network link with IMF, its sister organization.
Amid the growing number of cyber attacks, corporations and companies are looking for stricter and more stringent cyber security measures to combat the leaks in the system.
The cyber security breaches have provided an opportunity to online security service providers such as EMC Corp., Symantec Corp. (SYMC) and McAfee, which was acquired by Intel Corp. (INTC), to name a few. These companies are facing the challenge of providing a secure operating platform for companies in the online space by updating itself with the growing need of clients.
The incidents present an opportunity for the security providers as we expect companies to spend a large portion of their information technology (IT) budgets on cyber security going forward. We also expect governments to take preventive steps to restrict cyber crime. This may include an increase in cyber security budgets, formation of cyber crime units headed by experts from the information technology field and increasing co-operation with other countries.
We believe cyber security is growing into one of the most discussed topics in 2011, particularly as the cloud computing adoption increases. The string of attacks on major corporations and government agencies has shown the vulnerability of the present security systems.
The gaming industry is undergoing a transition towards digital and online gaming. The rapid adoption of online games is expected to drive the top-line growth of most of these companies and will likely drive margins due to lower developmental and distribution cost compared to traditional disc based games.
However, the increasing use of Internet for gaming makes the companies vulnerable to cyber attacks. A more vigilant approach from this sector is the need of the hour, in our view.
Recommendation
We believe Electronic Arts has a strong product pipeline for fiscal 2012 and beyond, which will drive its top-line growth going forward. We believe that the high quality titles, impressive product line, increasing online exposure, social games and portfolio diversification guarantees market share gains over the long term.
We have a Neutral recommendation on Electronic Arts over the long term (for the next 6 to 12 months). Currently, Electronic Arts has a Zacks #3 Rank, which implies a Hold rating in the short term.
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