Pachter explains Wii U is "toast" comments

Analyst Michael Pachter of Wedbush Securities is no stranger to controversy when he makes comments about video games. In his keynote address at the recent [a]list summit he said the Wii U was "toast" if it launches at a price higher than $249, and it's "toast anyway."

He also talked about Nintendo being "in disarray" and Nintendo at the [a]list summit). These remarks ignited a lengthy and heated discussion on the NeoGAF forums, with Pachter dropping into to explain his comments in more detail, summarizing the reasons for his opinions about Nintendo and the Wii U:

"I believe (and please feel free to disagree) that a large portion of the Wii audience comprised casual gamers--those who bought one or two games a year the first two years, then put the Wii aside--and that those casual gamers moved on to another platform. The 'other' platform may have been Facebook games, smart phone games, tablet games, or one of the other consoles, but once they moved on, they are not likely to come back," said Pachter.

"At the same time, I believe (again, please feel free to disagree) that the growth of smart phones and tablets has attracted many potential dedicated handheld game customers, and these people also are unlikely to come back to either 3DS or PS Vita," Pachter continued. "Summing this up, I think the addressable market for the Wii U is around half of the market for the Wii, and I think Microsoft and Sony will compete for a portion of that market if the Wii U is priced too high. I think that the dedicated handheld market is permanently impacted by smart phones and tablets, and think that Nintendo's addressable market is probably also half of its former market."

Pachter explained his comments about Nintendo being in disarray: "Nintendo is in disarray because they waited too long to launch the Wii U. I know that this sounds like (and is) sour grapes because they didn't launch the Wii HD in 2009 or 2010 as I 'predicted'. They should have, and because they didn't, the decline in Wii and DS hardware and software sales drove them into generating LOSSES."

Pachter felt it necessary to explain more about the financial aspect to the forum, given that they are probably not investors. "For those of you who aren't financial analysts, losses mean that the company is worth less than it was before. Nintendo stock has dropped by over 80 per cent in the last few years, and the market has appreciated over the same period. I'm paid to advise investors, and none have made a profit owning Nintendo stock. I don't think that many will make a profit over the next few years, because I don't think Nintendo's strategy will return them to profitability."

Pachter then dropped a match, apparently to see if he could ignite any flames: "If the context above infuriates you, go back to school and pay attention, then read it again ;-)" Surprisingly, the post actually generated more agreement than flames, but many forum posters still took Pachter to task. One poster got Pachter to post again in response, by asking "Out of interest, why is the word 'predicted' in inverted commas? There is no ambiguity as far as I can tell."

Pachter responded: "Because I didn't predict that they would launch a Wii HD. I said quite clearly on multiple occasions that 'if they were concerned about loss of market share for the Wii to HD devices, they should launch a Wii HD', and I said that I thought they were rational business people interested in making a profit, so it was likely that they 'would' do what they 'should' do."

"My mistake was in predicting that they would behave as rational business people and avoid generating losses. They acted too late, the Wii/DS bubbles burst, and they started generating losses. In other words, I don't think they behaved rationally, as I think they believed that the Wii bubble would last, and that the DS would continue to sell well and fund the development of the next generation console in 2012, when they were ready to release it. Iwata's comments at GDC 2011 show that he didn't accept cannibalization of handhelds by smart phones, even at that late date." Pachter added, "Somebody asked about the impact of the Yen's appreciation, which contributed around 35 - 40% of the decline in sales, but certainly not 100%."

With one final shot, Pachter ended his posting: "Any of you are welcome to apply for my job, but I suggest you stay in school as long as possible and pay attention before you apply."