Nintendo profit tumbles 61 percent in April-June on fewer hit game titles, stronger yen

By Tomoko A. Hosaka, AP
Thursday, July 30, 2009

Nintendo profit tumbles as game hits dwindle

TOKYO — Boredom, not the recession, may be Nintendo’s biggest villain.

Sales of the once unstoppable Wii console have tumbled for the first time since its launch three years ago, sending the gaming giant’s quarterly profit down 61 percent.

Nintendo blames a dearth of blockbuster games, without which enthusiasm for the Wii floundered.

“These casual gamers and light users, they’re getting bored,” said Satoru Kikuchi, an analyst at Deutsche Securities in Japan. “Nintendo needs to keep their attention with new software, but that hasn’t happened.”

The Kyoto-based company said Thursday its April-June net profit retreated to 42.3 billion yen ($445.2 million) from 107.3 billion yen a year earlier. Sales declined 40 percent to 253.5 billion yen, while operating profit — a measure of its core business — fell 66 percent to 40.4 billion yen.

The figures are a dramatic reversal from just a half year ago, when the Wii and DS handheld device smashed holiday sales records in the U.S. Popular new game titles last year like “Mario Kart Wii” and “Wii Fit” fed the fervor.

Nintendo sold 2.23 million Wii units during the three months through June 30, compared with 5.17 million last year. Global sales of Wii software slipped to 31.07 million units from 40.41 million the previous year.

Customers bought 5.97 million DS devices, down 14 percent on year.

“I knew the results were going to be bad, but this was even worse than my expectations,” Kikuchi said.

Nintendo’s sales in the Americas fell 38 percent, while those to Europe plunged by more than half — troubling signs for a company that derives 87 percent of its revenue from overseas markets.

The company was also hurt by a stronger-than-expected yen, which reduces the value of overseas profits when repatriated to Japan.

It estimated an exchange rate of 100 yen to the dollar. Instead, the dollar averaged 97.32 yen during the quarter.

But gloom afflicts the entire gaming industry, not just Nintendo, said Atul Goyal, a technology sector analyst for CLSA. Other platforms, including Sony’s PlayStation 3 and Microsoft’s Xbox 360, also face declining sales.

In June, U.S. sales of game hardware, software and accessories plunged 31 percent from the same month last year to $1.17 billion, according to market researcher NPD Group. It was the largest year-on-year decline the industry has seen in nearly nine years.

“At least Nintendo is profitable,” Goyal said. “That is the most important thing to notice. Every other (gaming) company is loss-making.”

When Nintendo released the Wii in 2006, the company sought to expand the gaming demographic to nontraditional players like women and seniors. The console, which features a wireless motion-detecting controller, was an immediate smash hit.

The Wii hit 50 million unit sales at the fastest pace of any video game machine ever. A cumulative 52.6 million Wii consoles had been sold as of June 30.

Nintendo expects to sell 26 million Wii machines and 30 million DS machines in the 12 months through March 2010.

It is banking on the latter half of the year to meet those targets. The company has high hopes for the recently launched “Wii Sports Resort,” which so far has gotten good reviews. It also plans to release “New Super Mario Bros. Wii” and “Wii Fit Plus” later this year.

“It is possible to recover since (the April-June result) was not due to the recession but rather the absence of hit products,” Kyodo News agency quoted Nintendo President Satoru Iwata as saying at a news conference in Osaka in western Japan.

Analysts, however, say that new software may not be enough to spur hardware sales and speculate that Nintendo may have to cut prices in the months ahead.

The company maintained its forecasts for the full year through March 2010. It continues to expect net profit of 300 billion yen on 1.8 trillion yen in sales.

In trading Thursday, shares of Nintendo jumped 2.6 percent to 26,820 yen, compared with a 0.5 percent gain in the benchmark Nikkei 225 index.

Nintendo reports earnings based on Japanese accounting standards.

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