UBS Warburg downgraded Midway Games (MWY

), Activision (ATVI

) and THQ Interactive (THQI

) to hold from strong buy.

Analyst Mike Wallace says video game stocks are halfway through the cycle, indicating the group should be range-bound for the next two years. Wallace sees a tough fourth-quarter retail environment, and believes it will keep some names flat for awhile. Wallace says the video game industry is having a record-breaking 2002, however, he doesn't believe all publishers are participating equally. He thinks publishers' stocks will look past the 2002 holiday season, and start trading at 2003 numbers. He cut his $8 Midway target to $6, cut the $28 Activision target to $22, and trimmed the $21 THQ target to $18.