Square Enix consolidating its business divisions

Update: Company plans to reorganize from 11 to four units, won't involve workforce reduction

After a somewhat disappointing Q3 in which Just Cause 4 underperformed and mobile sales declined, Square Enix may soon be looking at a restructuring involving the reduction of its business divisions from 11 units to four.

Currently, Square Enix is divided into eleven business units, with each responsible for a particular subset of the company's titles. However, in the company's Q3 earnings call with investors, president Yosuke Matsuda said that what appears to be a fairly drastic restructuring was in order in the coming fiscal year.

"As of Q3 of fiscal year 2020, we plan on reorganizing and consolidate the 11 existing business divisions at Square Enix into four business units in order to increase the efficiency of our workflows, make more effective use of our resources, and consolidate our expertise with the aim of improving profitability," he said.

This was in response to a question from an investor referencing the company's Q2 briefing, when it was mentioned Square Enix would change its policy to develop more smartphone games.

Square Enix saw a rough Q3, which may explain its willingness to consolidate and redistribute resources. Net sales were down 4.8% year-over-year, and profits were down a far more drastic 60.1% year-over-year. Matsuda attributed this to a "sluggish start" for Just Cause 4, with sales of Shadow of the Tomb Raider and Dragon Quest Builders 2 unable to make up for the shortfall.

When asked why the new releases had such a slow start, Masuda offered an explanation that may also shine a light on the studio's interest in refocusing its resources on a smaller number of projects.

"We think the main reason is that we were unable to provide an experience that was novel enough that players would choose to buy them before any of the other numerous major titles on the competitive landscape," Masuda said. "Also, while it is true that we are seeing a shift away from sales of boxes to digital downloads, with this many titles competing with one another, initial sales are definitely an important element in increasing user awareness. For that reason, we do need to engage in a certain amount of advertising just ahead of a new title's launch."

Update:Upon reaching out to Square Enix for clarification on the planned consolidation, was told that the planned changes would be limited to Square Enix's Japan studio and would take place in April of 2019. Furthermore, the shift is not to involve a reduction of workforce, but is intended as a consolidation of business units to more effectively allocate resources.

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