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170 employees is actually pretty small for a multiple-project studio.
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Even if they have as many as five projects that would be 34 people on average per project, just about the same size as 3DR's previous DNF team.
A possible scenario for five projects:
1. Borderlands 2.
2. New BIA game.
3. Aliens: Colonial Marines.
4. Duke Begins.
5. DNF.
"But one of their projects would have to go on hold to do this."
Or they could staff up.
But even if they had to put Duke Begins on hold, would that be so terrible? Heck if they were really smart about sharing art assets(strippers, some of the more generic NPCs and by-standers, some props and level decorations(how many different mirrors, tables, lamps etc do you need between DB and DNF?), weapons, Duke himself, etc), some sound effects and code between Duke Begins and DNF and taking advantage of the fact that DNF is at all probability far longer in its development than DB they could do with a combined team of perhaps 60 or even 55 for those two games.
Edit2:
I am not at all suggesting that any of the above is actually happening or even likely. Just saying that it is certainly more than possible for GBX to be developing DNF without putting one of their projects on hold and even if they do if that project was Duke Begins I wouldn't mind that much. However for all I know this rumor could be false, but it seems to be one of the more credible rumors to turn up in a while. Remember initially both the mass departures of 2006 and the lay offs last year were revealed beforehand with journalists going off sources. So we will see.