The news is bad for Nintendo. It reported its fiscal year numbers. The video game company posted its first full-year drop in revenue in six years. Wii sales were down 21% year-over-year to 20.53 million. Revenue fell 22% to 1.434 trillion yen and operating profit dropped 36% to 356.57 billion yen.
Nintendo’s problems go well beyond earnings. Its Wii console is now three- years-old and its portable DS has been in the market closer to a decade. Both have had modifications and updates, but they are still the basic platforms that they were when they were launched. In the meantime, two larger companies, Microsoft (NASDAQ: MSFT) and Sony (NYSE: SNE), have entered the market with the Xbox 360 and PS3. The Wii has consistently outsold them month after month, but $100 price cuts on the products have almost certainly pressured Nintendo’s sales.
Nintendo has begun giving away new controllers and hardware packages that normally cost $49.95 to lift sales. Its Wii Fit motion detector product revived sales somewhat a year ago, but its novelty is gone.
What is obvious is that Nintendo is unlikely to release a completely new handset in the near future. The Wii is popular because it is easier to use than the PS3 and Xbox 360. That gives it a large market among “casual gamers” who do not want to take days to learn the features of the product.
The market was bound to catch up to Nintendo because of the capital resources and development capacity of its two rivals. Their products can now play Blu ray disks and run HD video. That are also set up for multiplayer games which can be used on the internet. A player in India can compete with one in the US.
Nintendo probably has cut is price on the Wii has much as it can. It chopped retail prices by $50 late last year. The cost of its bill of materials probably bottomed some time again because the machine was a success for so long. That means its leverage with suppliers is limited.
What has been an extraordinary run for the company, on that made it the No.2 market cap company on the Tokyo exchange at one point, is over.
Douglas A. McIntyre
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