Activision Blizzard Inc's first-quarter outlook missed Wall Street expectations and it said it would disband the unit that makes Guitar Hero music games, sending its shares down 8 percent.

The company forecast revenue of $640 million in the first quarter of 2011 and EPS of 7 cents per share, compared with the $734.70 million analysts were expecting on 10 cents per share for the quarter.

Guidance for 2011 was very disappointing, said MKM Partners analyst Eric Handler.

The company's shares fell to $10.81 in after-hours trading compared with a regular-session close of $11.69.

Activision Blizzard said it would disband its Guitar Hero business unit and stop development of the Guitar Hero game for 2011 because music-themed video games have been fading in popularity. In December, Viacom Inc sold Harmonix Music Systems, the developer behind the Rock Band franchise, to the investment firm Columbus Nova and gained up to $200 million in the deal, analysts have estimated.

We simply cannot make these games profitably based on current economics, Activision Publishing's chief executive, Eric Hirshberg, told analysts on a conference call. The company also said it would not release a skateboarding game next year and that it would discontinue the game True Crime: Hong Kong.

The company announced a new digital platform, Beachhead, which will focus on the highly successful Call of Duty franchise.

Since the launch of Call of Duty: Black Ops in November, it has pulled in more $1 billion in sales.

On an adjusted basis costs for deferral of revenues and stock-based compensations, EPS was 53 cents a share, which was above analysts' average estimates of 51 cents a share.

Adjusted for various costs, the company's revenue was $2.55 billion, up from $2.50 billion a year earlier. This was above analysts' expectations of $2.36 billion, according to Thomson-Reuters I/B/E/S.

Activision Blizzard also said it would repurchase up to $1.5 billion of outstanding common stock.

The company was formed in 2008 through the merger of Activision with Blizzard, the former games unit of France's Vivendi SA, which still owns more than half the combined company.

(Reporting by Liana B. Baker; editing by Bernard Orr, Andre Grenon and Matthew Lewis)

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