What Do Nintendo’s Lowered Expectations Mean for the Future?

On January 30, Nintendo released its financial results for the third quarter of 2012. The results showed just where Nintendo stands in terms of its profits and sales, and the good news is that Nintendo projects a net income profit of 14 billion Yen. That’s just over $150 million, meaning that the company’s shareholders should be smiling and shaking each others’ hands. This result also means Nintendo has more in the bank to work with than at the closing of the previous financial year.

That’s good news! And it’s good news that was easily overlooked in many news reports about the company’s third quarter results, simply because… when it comes to operating income? Things don’t look so hot.

As of writing, Nintendo’s reports showed that the company has actually switched its projections for operating income. Literally, they’ve lowered their expectations. Now instead of an operating income that comes out of a projected profit of over $200 million (that’s 20 billion Yen, for those of you keeping score) to count that same amount of projected income as a loss. That means missed sales targets in a big way. And despite the projected profit for Nintendo as a whole, that number is—from the looks of things—based on some fancy number crunching and hand-waving.

So, why does operating income matter?

Well, operating income reflects the basic workings of a business—the guts, if you will of what makes up Nintendo and holds it together. It shows what they do and how well they’re doing it. And what is it that they do, exactly? Sell video games and video game consoles.

As a company, it looks like Nintendo is on solid ground. They’re still secure, and they’re not going anywhere, so let’s not go crazy with apocalyptic stories and fatalistic conclusions, but there are still poisonous flowers in paradise. In only three months, we’ve seen Nintendo shift their expectations for sales in all departments—hardware AND software—thus creating a lowered expectation for their operating income.

But let’s take a quick look at where this is coming from. On the whole, the 3DS is doing okay. Could be better, and they could have higher game sales, but the handheld system itself is about to pass a milestone of 30 million units sold. Most of these have been sold in Japan. With upcoming releases of highly expected games like Monster Hunter 4, Luigi’s Mansion: Dark Moon, and Animal Crossing: New Leaf, it’s possible the numbers in Europe and America will increase. And we have to remember that the blockbuster titles for the second half of 2013 haven’t yet been announced, which could assist sales in a significant way.

On the other hand, the Wii U—which was described in Nintendo’s report as having a “negative impact on Nintendo’s profits”—is where the trouble is coming from. Some of you will no doubt remember an article here on Nintendo Fire where I talked about my thoughts for the upcoming system, and sorry to say, many of my concerns seem to have been on the money. The target Nintendo set originally for the Wii U was 5.5 million units sold (!!!), now reduced to only 3 million by the end of 2013. Three million isn’t a bad figure at all, but it’s still a scale-back that clearly shows a situation of low momentum for the new system.

But a big part of the problem with the Wii U is this: games. Games, games, games. Even Satoru Iwata admitted it during the recent Wii U Direct presentation, where he personally apologized for the delay in new games. He made some big announcements to try and pacify the mobs, and these went over fairly well with Nintendo fans. And, over the next two months, there are still a number of heavily anticipated releases on the way: Rayman Legends, Wii Fit U, and Monster Hunter 3 Ultimate, to name only a few. The Wii U may see increased sales momentum from these, especially considering the range of titles (ie. Wii Fit U may appeal to a different user group than Monster Hunter 3 Ultimate, in some cases, part of the “everybody’s got one” situation I talked about in my article last year).

So, it’s possible some people will decide to upgrade to the Wii U once many of these titles are released. However, these third quarter results from Nintendo show an admission of the stark realities of their situation and of the gaming market at the moment. Nintendo is no stranger to bold, sweeping predictions of their products, but recently each report coming out of the company has seen lowered expectations and estimates. Is this a matter of perspective? Possibly. Or it may just mean Nintendo has a bit of egg on their face from being a little too ambitious, and is finally ready to clean it off and move on.

It’s not like we can point all the blame at Nintendo, though. They dominated sales with the Wii and the DS family for so long, so why not have the same level of optimism for their new products? They’re an excitable bunch over at Nintendo, and they seem to have just figured the 3DS and Wii U would be received by the public with the same enthusiasm.

And it’s not an easy market to be in right now, for any console manufacturer. With ongoing and increasing competition from smartphones and tablets, console producers are needing to shift how they do business and how they approach the buying public. Plus, not everyone’s economy is back on track either, and what’s the first thing to go when money’s tight? Entertainment. You’re not going to buy Tekken Tag Tournament 2 if it means you don’t eat that week (Well, Faith might…)

The third quarter report from Nintendo showed that the company has something like $5.5 billion in cash and deposit assets, with net assets over $13 billion—so the company isn’t in serious danger. No need to panic. But, in a new and differently competitive marketplace, they’re going to need to continue to adjust their expectations and put up a fight for their position in the industry. And if the recent Wii U Direct broadcast is any indication, it sure looks like they’re ready to do just that.


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Author: Dave View all posts by
Dave will tell you that he likes to play video games, this is in fact a lie. What he really likes to do is buy games, and leaving them sitting unopened on his shelf. He is a monster.

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