TOKYO, Sept 14 (Reuters) - Square Enix Co. (9684.T: Quote, Profile, Research), Japan's second-largest videogame maker, said on Wednesday it was aiming for stable long-term profit margins of about 20 percent after acquiring game machine maker Taito Corp. (9646.T: Quote, Profile, Research).
"The group as a whole at 20 percent, that's the target," Square Enix President Yoichi Wada said at the Reuters Asia Technology and Telecoms Summit. "It will be lower than the current Square-Enix profit margin."
Square Enix, creator of the Final Fantasy and Dragon Quest game series, had a consolidated operating profit margin of 35.8 percent in the 2004/05 fiscal year, compared with Taito's parent-only operating margin of 3.4 percent.
Wada said that Square Enix aimed to raise Taito's profit margin to 10-15 percent after the acquisition.
"Twenty percent is definitely do-able," Hiroshi Kamide, games and Internet analyst at KBC Securities Japan, said at the summit at the Reuters office in Tokyo.
Kamide noted, however, that while Taito had strong mobile content and amusement centre businesses, its software development, karaoke hardware and e-commerce arms were far less profitable.
"There are lots of skeletons in the Taito closet," he said. Obviously when the takeover bid is successful, it will come into the Square-Enix group. They will need to clean it up -- a lot."
KARAOKE, SKELETONS
Wada said his company would look at options for Taito's karaoke operations after the acquisition.
"It's quite clear which parts of the karaoke business are no good, so we can boost profitability by sorting those out."
Square Enix is aiming to buy 67 percent of Taito's shares by Sept. 21.
The bid has the support of Taito management and major shareholder Kyocera Corp. (6971.T: Quote, Profile, Research), which holds a 36.02 percent stake.
"Since we have the cooperation of Kyocera, it is generally going favourably," Wada said of the takeover bid.
Square-Enix shares closed up 1.95 percent at 3,130 yen while those of Taito finished down 0.55 percent at 180,000 yen. The Nikkei 225 index closed down 0.52 percent.
Wada said Square Enix would continue to pursue acquisitions as part of its strategy to gather customers into an interactive community. "Taito is not the last of our acquisitions," he said.
He cited blog and auction Web sites as areas of possible acquisition interest.
"The next step is how we can capture community," he said.
"What we are doing is creating new channnels, and elements for constructing such new channels is what we're trying to bring together."
Square-Enix ranks behind Nintendo Co. (7974.OS: Quote, Profile, Research) among Japan's videogame makers.
