TOKYO--Nintendo Co. (7974.OK) slashed Wednesday its sales outlook for the Wii U, the company's first new home console in six years and an attempt at recapturing the excitement generated by the original Wii in an industry increasingly dominated by games on smartphones.
The revised sales view is the latest dose of bad news for Nintendo, coming off its first annual loss in more than three decades, after a sluggish start to its previous hardware launch, the Nintendo 3DS hand-held, pushed the company into an early price cut.
The Kyoto-based videogame maker also lowered its full-year sales outlook for a second straight quarter, cutting its sales projections by 17% to Y670 billion for the fiscal year to March. Nintendo said the "lower than expected sales outlook" was based on its performance in the year-end sales season and afterward. A poor holiday sales period is devastating for Nintendo as the company generates more revenue in that single three month period to December than it does in the other three quarters combined.
"The business is not firing on all cylinders. It had a bad Christmas," said David Gibson, a Tokyo-based senior analyst at Macquarie Securities. "We thought it was going to be bad, but this is even worse," said Mr. Gibson, who has an "underperform" rating on Nintendo.
Nintendo's struggles are not limited to a single product. It lowered its full-year sales projections for all of its hardware products and software titles. But the most dramatic cut came on its newest system, the Wii U. It launched the game machine in November with hopes that its innovative controller equipped with a six-inch, touch-screen display would enable a new type of game play and fend off the tides of change sweeping the videogame industry.
Initial demand for the Wii U appears soft. Nintendo sold 3.06 million units of the Wii U in the three months to December. Nintendo cut its Wii U sales target to 4 million units by the end of March from an earlier forecast of 5.5 million units. It also lowered Wii U software sales forecasts by a third to 16 million units.
The Wii U represents Nintendo's attempt to extend the life of the videogame industry's traditional business model--selling dedicated game consoles and software limited to that machine--at a time when the proliferation of smartphones is opening the floodgates to inexpensive or free-to-play titles for a wide range of devices.
Macquarie Securities' Mr. Gibson said Nintendo may be forced to resort to drastic measures to spur interest in the Wii U, such as a price cut and accelerated introductions of popular game franchises. The playing field is also expected to grow more crowded by the end of the year with the industry bracing for the debut of successors to Sony Corp.'s (>> SONY CORPORATION) PlayStation 3 and Microsoft Corp.'s (>> Microsoft Corporation) Xbox 360. Neither company has made any official announcements regarding a replacement for their current home consoles.
Despite the weak sales figures, Nintendo said it returned to profit in the first nine months of its fiscal year helped by lower production costs for its Nintendo 3DS hand-held game machine and a weaker yen that inflated the value of its overseas assets.
Nintendo said it swung to a net profit of Y14.54 billion ($160 million) for the nine months to December from a loss of Y48.35 billion in the equivalent year-ago period. Revenue fell 2.4% to Y543.03 billion.
While Nintendo does not break out quarterly results, Nintendo turned profitable in the holiday quarter after two straight quarters in the red.
For the current fiscal year to March, Nintendo now expects an operating loss of Y20 billion, compared with an earlier projection for an operating profit of Y20 billion. The company raised its net profit forecast to Y14 billion from an earlier Y6 billion forecast because of the weaker yen.
The Japanese currency has fallen sharply against both the dollar and the euro since mid-November. Nintendo keeps most if its cash in foreign currencies, so a weaker yen inflates paper gains on its reserves while a stronger yen leads to losses in the value of those foreign holdings. Nintendo said it incurred a Y22.2 billion gain from yen depreciation.
Nintendo revised its foreign-exchange rate expectations for the rest of the fiscal year. It now sees the dollar at Y90 and the euro at Y120.
The industry's changing landscape is also hurting sales of Nintendo's 3DS. The company is trying to script a comeback for the 3DS. The company worked to lower the manufacturing costs for the hand-held in response to the device's reduced price. It said it halted losses from the 3DS in fall 2012.
Nintendo lowered its 3DS sales projections. It is aiming for sales of 15 million units for the year to March versus an October estimate of 17.5 million units. It also cut software sales targets by nearly 30% to 50 million units.
Write to Daisuke Wakabayashi at email@example.com
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