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Weak Christmas hardware sales slash Nintendo forecasts by 80bn

Weak Christmas hardware sales slash Nintendo forecasts by 80bn

Fri 17 Jan 2014 8:10am GMT / 3:10am EST / 12:10am PST
RetailHardwarePublishingFinancial

Publisher expects full-year loss of 25bn as Wii U estimates are cut by half

Nintendo has drastically cut its financial prediction for the year ending March 31, 2014, following weak global hardware sales over the Christmas period.

Previously, Nintendo expected a net profit of 55 billion for the year, but underperformance by both the 3DS and Wii U has lead to that figure dropping to a net loss of 25 billion, a slip of 80 billion - around $766.3 million.

Whilst the impact of new console hardware is undeniable, the results are still a shocking and dramatic blow for the platform holder, with a traditionally bountiful Christmas harvest significantly spoiled.

"In the year-end sales season which constitutes the highest proportion of the annual sales volume, software sales with a relatively high margin were significantly lower than our original forecasts mainly due to the fact that hardware sales did not reach their expected level," reads a report accompanying the forecast. "As a result, the total of selling, general and administrative expenses will surpass gross profit, which leads to an operating loss."

nfigs

There is some silver lining to the stormclouds over Kyoto, however. The continuing slide of the Yen against foreign currencies has meant that some of the balance will be restored in exchange rates. Not enough, though, to put the year into a net positive balance.

"The reason why we will post ordinary income despite the operating loss situation is that we now assume that the yen will be weaker than our original assumptions at the beginning of the fiscal year, which results in foreign exchange gains.

"On the other hand, we expect to post a net loss because we need to reverse deferred tax assets in relation to the losses carried over from the previous fiscal years mainly in the United States, as we can no longer expect our financial performance to recover in the current fiscal year. Exchange rate assumptions for the fourth financial quarter as well as for the end of the full fiscal year have been revised from 90 yen to 100 yen per U.S. dollar, and from 120 yen to 140 yen per euro in consideration of the recent exchange rate situation."

Interestingly, whilst hardware and software sales estimations were reduced for both the Wii U and the 3DS, software predictions for the Wii were up significantly - with the 26 million unit forecast easily exceeding the predicted 19 million for the Wii U, itself down from an earlier forecast of 38 million. 3DS software is expected to shift 66 million units, rather than the 80 million predicted earlier. Wii U hardware forecasts for the year have been revised downward to just 2.8 million for the year, from a previous estimate of 9 million.

27 Comments

Aleksi Ranta
Product Manager - Hardware

268 124 0.5
Totally shocking. Iwata will resign within the year.

Posted:6 months ago

#1

Christian Keichel
Journalist

571 782 1.4
Popular Comment
Totally shocking. Iwata will resign within the year.
I doubt it, if the 25 billion are the losses for full year 2013 the accumulated losses from the last two fiscal years (68 billion Yen) are still only less then a third of the profits, the company posted for the fiscal year 2009 (257 billion Yen) and they are still 10 billion short of the profits Nintendo reported for fiscal year 2011 (77.6 billion Yen). With all the Media doom and gloom regarding Nintendo it's necessary to put things in perspective..

Edited 1 times. Last edit by Christian Keichel on 17th January 2014 12:11pm

Posted:6 months ago

#2

Daniel Hughes
Studying PhD Literary Modernism

436 496 1.1
@ Aleksi

It's clear Wii U was never going to hit the 9 million target, though I expect Nintendo didn't realise the situation would be so bad. I expect they knew they'd miss these targets four months ago, but elected not to revise estimates down so as not to further impact market confidence.

I'd also expected, based on November NPD and Japanese figures, that 3DS would underperform, but not quite to this extent. It does give you a clear idea of how much the market has changed in a short space of time. 3DS has been the market leader in North America, Europe and Japan over the time period covered in Nintendo's financials, but even then, the full year sales aren't hugely impressive, which is worrying for anyone in traditional games hardware. Market leading portables are struggling to reach half the peak of the all time best, which isn't too surprising, but how will home consoles fare? A strong opening quarter isn't enough to judge. Will PS4 or Xbox One return to selling upwards of 15 million units a year? Niether 360 or PS3 managed this, yet PS2 and Wii did. Will they match or exceed their predecessors? They certainly won't be able to offset the collective unit losses that is resulting with 3DS, Wii U and Vita. The market is going to shrink, and that is already underway.

Nintendo obviously need a change of direction. The one good thing about this is that when their backs are against the wall, Nintendo do have to take risks. We might not see that risk for two or three years, but I think it's coming, and it will be very interesting to see what they bring to market.

Posted:6 months ago

#3

Aleksi Ranta
Product Manager - Hardware

268 124 0.5
its not about the raw performance they have at the moment, its more about investor expectations and confidence.
And translation from the Nikkei News: "He says the most important thing is to revigorate Nintendo's business as quickly as possible. He will NOT resign, but stay in office to carry that through."
That just reads to me as, "I will fix this and take responsibility once I have done so = resign"

Posted:6 months ago

#4

Christian Keichel
Journalist

571 782 1.4
Popular Comment
That just reads to me as, "I will fix this and take responsibility once I have done so = resign"
If he says he won't resign, it means to you he will resign? If he would be able to lead Nintendo back to profitability why should he resign afterwards?

Edited 1 times. Last edit by Christian Keichel on 17th January 2014 12:37pm

Posted:6 months ago

#5

Robin Clarke
Producer

297 681 2.3
I don't think that's how (big old) Japanese companies tend to work. For better or worse.

Posted:6 months ago

#6

Aleksi Ranta
Product Manager - Hardware

268 124 0.5
ive always considered Japanese company directors and politicians as people who take great pride in their job and through that carry personal responsibility if or when things turn sour.

It will indeed be an achievement if he turns the companys sales around but that will not happen immediately and the damage is already being done, in the eyes of the investor.

Id say wait and see but i still stand behind my assumption he will step down.

Posted:6 months ago

#7

Nicholas Pantazis
Senior Editor

1,011 1,403 1.4
Popular Comment
Japanese companies don't replace staff like American and European companies do on any level (low level employees or high level executives). There's a culture of corporate loyalty there that doesn't exist here. It's possible for Iwata to resign or be pushed out by the investment board, but it's unlikely. In an American company, sure, this many missteps will have you pushed out (look at Balmer, or Crazy Ken).

Posted:6 months ago

#8

Daniel Hughes
Studying PhD Literary Modernism

436 496 1.1
NPD seems to have Wii U at just under 500k for December, which isn't that bad really--considering the still relatively high price, intense competition and complete lack of momentum for the rest of the year. Without another price cut and Kart/Smash launching soon, Wii U will be back in the doldrums very quickly.

Posted:6 months ago

#9

Rick Lopez
Illustrator, Graphic Designer

1,269 941 0.7
Popular Comment
You know... I love Nintendo, and I want them to succeed, but at this point im in a wait and see position, until new software rolls out, Specifically, Super Smash Bros, MarioKart, X and Fire Emblem X SMT. However I got a 3DS for X-mas and to be honest Im really love it but in an addictive way, im practicaly glued to it and I take it everywhere I go. If the WiiU can somehow bring me these same expiriences that I find on the 3DS then Im sold.

However the differance between the 3DS and WiiU is the amount and variety of software out for them. The 3DS enjoys lots of steady software releases of both AAA 1st party and Niche releases. I particularly like lots of the niche, more obscure titles, like code of princess, Shinobi, Etrian odyssy. So I have lots to choose from besides your 1st party titles. The WiiU has quite a long list of game releases Im waiting for so my fingers are crossed. And Fire Emblem is Nintendo's killer app for me. That will most likely push me to get the console.

So what Im saying is, Nintendo has a shot if they play their remaining cards right. They are few left though. I would also work on the marketing and awarness. Lots a people arent clear and dont even know the WiiU exists, to them its just a Wii and as far as lots a people are conerned their kids own a Wii. There presence at E3 was actually pretty sad. Im hoping they come back and let themselves be seen more.

Posted:6 months ago

#10

Steve Peterson
West Coast Editor

107 69 0.6
Nintendo has slashed its Wii U forecast by 70%, down to 2.8 million units for the year. Worse, they also cut the 3DS forecast, to 13.5 million from 18 million. They aren't meeting their own expectations, and by a considerable amount. Clearly their strategy isn't working. What will they change? I'm not sure... somehow, though, they need to get more of their top franchises out there without delay. For whatever reasons Nintendo has been very late getting important software to market. If they don't fix that, nothing else they do really matters.

Posted:6 months ago

#11

Nick Parker
Consultant

279 143 0.5
Popular Comment
In Japan, Wii U sold through 880k in 2013, 345k of which was in December (the 2nd best selling console behind 3DS in that month). Not bad on a relative to competition basis but weak for standalone sales.

Software doesn't seem to be making the impact it used to; Wii Fit was the catalyst to launch Wii hardware sales to a new level - any of you aware of the Wii U Fit, or even seen a commercial for it? Super Mario 3D World - we waited all year for its arrival to impact hardware but in the UK, the game reached 97th in the annual top sellers (true, it only had 5 weeks) and Wii U hardware sold through 43k units in December out of 115k for the year, this for a game which achieved 93% Metacritic.

Nintendo have to focus on communication, s/w, then price before October but I fear its all a little too late.

I worked for Nintendo for 3 years then SCE for 6 when there were some pretty ugly boardroom battles and senior managers made to fall on their proverbial swords so I wouldn't bank on Japanese corporate loyalty to save anybody.

Posted:6 months ago

#12

Nick Wofford
Hobbyist

148 146 1.0
I agree with Nick on how secure executives are in their jobs. Iwata is going to be fired; he could resign, but he closed that door. The only option for the investors is to oust him. He's done nothing but sink the stock of the company. Just look at what happened to the stock today.

Posted:6 months ago

#13

Gareth Eckley
Commercial Analyst

88 67 0.8
I think you'll find ground level workers will be let go before executives. When you fire executives, it makes it look like the management of the company is totally out of touch with the market and doesn't have a strong direction to go in. So just keep firing people on the bottom. Worst case scenario, your previous experience will get you a role where you can ride another company into the ground. Just as long as you don't make shareholders think they're throwing money at clowns with a good education.

In other news, if you're in a satellite of Nintendo that doesn't manage an important property, start looking for a new job.

Edited 1 times. Last edit by Gareth Eckley on 18th January 2014 12:03am

Posted:6 months ago

#14

Paul Jace
Merchandiser

868 1,273 1.5
NPD seems to have Wii U at just under 500k for December, which isn't that bad really
I agree that 500k(or close to it) in sales for a single month is not a bad month, atleast not when looked at singularly. The problem comes with comparisions to the competition. From the numbers reported so far the Wii U was outsold in December by the XBO, 360, PS4 and possibly PS3. In November 2013 it was also outsold by all four of those systems. So not only is it pretty clear that the Wii U is not as desirable as the newest systems released but it's still being outsold by last gen systems after it's been on store shelves for an entire year.

Slashing the hardware forecast were smart but I'm still not sure how exactly Nintendo can turn the Wii U platform around. I gave them the benefit of the doubt for their entire first year. If they fail to make a profit this year than perhaps it really will be time for them to abandon the Wii U hardware completely.

Posted:6 months ago

#15

Bruce Everiss
Marketing Consultant

1,692 594 0.4
I took a lot of personal abuse on here when I first said that WiiU = Dreamcast.
Nintendo are stuck in how the industry was 5 years ago. Not how it is now.

I look forwards to the Nintendo gaming phone announcement.

Posted:6 months ago

#16

Justin Biddle
Software Developer

149 456 3.1
I remember you saying that when it was announced that the WiiU was going to win hands down against Sony and Microsoft and only once it had obviously flopped did you say that it was a failure. I appreciate you can change your mind but you also can't expect people to take what you say at face value when you were obviously wrong about it at one point

Edited 1 times. Last edit by Justin Biddle on 18th January 2014 4:07pm

Posted:6 months ago

#17

Paul Johnson
Managing Director / Lead code monkey

799 996 1.2
Maybe all these Nintendo apologists will wind their necks in a bit now. Everyone else managed to see this coming.

Posted:6 months ago

#18

Shane Sweeney
Academic

349 250 0.7
Paul, they also said it during the Wii era... the Game Cube era... and when Sony entered the market during the Nintendo 64 era....

Hell I heard in the 90's after Megadrive outsold the Super Nintendo in the states the writing was on the walls...

I won't comment on the potential duration of Nintendo's first CEO not from the Yamauchi family. But people have been saying this was coming for Nintendo since they resurrected the video games industry.

Hell to be honest everyone was saying it while Nintendo was trying to launch the NES in the west. Predicting that the generation after the Wii's unprecedented boom was going to be a decline is not seeing anything coming. It's called the regression toward the mean.

Edited 3 times. Last edit by Shane Sweeney on 19th January 2014 3:09pm

Posted:6 months ago

#19

Morgan King
Animator

46 90 2.0
Even if it's a case of a broken clock being right twice a day, it does seem like everybody outside of Nintendo's walls were baffled by the Wii U unveiling and the strategy they were pursuing. The troubling part is how they couldn't have seen this coming and weren't listening to those who did (even internally). I don't think anybody was expecting the Wii's breakout mainstream success again, but the Wii U is a clumsy idea on paper, much less in reality where it has to contend with a dearth of compelling content and being positioned against actual competitors.

Posted:6 months ago

#20

Christian Slater
DevilBliss Games Consultancy

22 43 2.0
'Nintendo shares plunge 18% on loss warning'

http://www.bbc.co.uk/news/business-25805136

This surprised me: "Nintendo also reduced the sales forecast for its 3DS console from 18 million to 13.5 million units."

Edited 1 times. Last edit by Christian Slater on 20th January 2014 11:43am

Posted:6 months ago

#21

Aleksi Ranta
Product Manager - Hardware

268 124 0.5
Wii U sales were expected to be poor but the drop in forecast of 3DS was the real shocker.

Posted:6 months ago

#22

Art C. Jones
Writer / Blogger

58 78 1.3
Yes, though the media has been 100% on WiiU, 3DS was the thing Nintendo called out specifically. The Nintendo release said they were encouraged by WiiU and concerned by 3DS.

The media also hasn't thought much about that point.
The 3DS was #1 in every territory in 2013.
The 3DS by Nintendo's statement, has serious issues.

What does that mean about all the other game systems (you know, all the ones that weren't #1?)
You've got to think that the 3DS being #1 AND in crisis means every other console on the market is BEYOND crisis.

Edited 1 times. Last edit by Art C. Jones on 20th January 2014 6:05pm

Posted:6 months ago

#23

Alfonso Sexto
Lead Tester

767 574 0.7
@Bruce:

Dreamcast was a victim of Sega's bad marketing, Wii U is a victim of what you just said; Nintendo being stuck in how the industry was 5 years ago (if not more).

I don't see a Nintendo phone coming anytime soon; if they release it it would be in Japan and they would need to create a 5G whose catalog would not be exportable outside of Japan and Korea. Releasing and developing their product for Smartphones, that is a possibility (Didn't they confirmed recently that they have that possibility over the table already?)

Posted:6 months ago

#24

Alfonso Sexto
Lead Tester

767 574 0.7
@Art C
You've got to think that the 3DS being #1 AND in crisis means every other console on the market is BEYOND crisis.
I think you completely oversaw a thing called "sales expectations" which in the case of the other consoles (PS4 and XOne) the numbers are a lot more favorable.

Posted:6 months ago

#25

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