silent-hillFoundation 9 Entertainment is the latest game company to cut back on its development efforts as a result of a slowdown in the core video game business, VentureBeat has learned.

The Irvine, Calif.-based game development company is one of the biggest pure developers, with a collection of game studios making work-for-hire games for the Nintendo DS, consoles, and a variety of other platforms. Hence, its own rocky road is one more example of tough times in the hardcore game industry, where sales in June fell 31 percent compared to a year ago.

Foundation 9 told its employees that it would close its Fizz Factor game studio in Austin, Texas. It also decided to merge its Amaze and Griptonite studios, which are both in Kirkland, Wash. It is also cutting back on Double Helix Games, a studio in Irvine, Calif. Also, across the board, the company said it would suspend matching payments to the company’s 401k retirement program.

[Update: In a statement, the company said, “It’s important to F9 to remain a strong and profitable studio, so that we can continue to provide the best possible services to our publishing partners and employees. As such, we continuously monitor our production capacity and capabilities to make sure it’s in tune with the market. From time to time we make decisions to grow or shrink capacity in relation to market conditions, and we do not make public comments on these decisions. We can confirm that we recently merged the operations of our two Kirkland studios, Amaze and Griptonite. Having separate ‘console’ and ‘handheld’ studios under the same roof simply didn’t make sense in light of the convergence in capabilities of modern game hardware! J.C. Connors, studio head of Griptonite, will lead the combined studio. As part of that restructuring, and our normal practice of monitoring business conditions, we made the decision to close our Austin, TX handheld studio, Fizz Factor.” End update]

Foundation 9 is still working on dozens of games and recently showed off work on 11 major games at the E3 game show in Los Angeles. Among those titles are Assassins Creed II for the PlayStation Portable, Where the Wild Things Are for Warner Bros on various platforms, G.I. Joe for Electronic Arts on a variety of platforms. We also reported recently that Foundation 9’s Double Helix studio is working on an unannounced Green Lantern superhero game.

The company’s chief executive is James North-Hearn, who took over from longtime CEO Jon Goldman in the spring of 2008. Foundation 9 was formed in 2005 with the combination of two major game studios. It raised a large amount of private equity from Francisco Partners in 2006 and was unique because it was a major game company that specialized only in development of games for others, not in publishing games under its own name. It makes games on a variety of platforms for big companies such as Electronic Arts and Activision Blizzard.

The company has made games such as The Golden Compass, a title for Sega that bombed, and Silent Hill: Homecoming (pictured).