Weak Christmas hardware sales slash Nintendo forecasts by ¥80bn
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."
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.
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.
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"
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.
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.
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.
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
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.
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.
Edited 1 times. Last edit by Justin Biddle on 18th January 2014 4:07pm
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
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
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
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?)