Nintendo Falls Apart

Nintendo has found out what it is like to be Sony (NYSE: SNE). The powerful Japanese inventor of the Wii now finds the sales of its console in free fall much as Sony did  with its PS3 three years ago.

Nintendo posted a first half loss, which is shocking given how high the company has ridden for so long. There was a time two years ago when it had the second highest market cap of any public company in Japan behind Toyota.

Nintendo had a net loss of 2 billion yen ($24.7 million) for the six months which ended September 30. This compares with a net profit of 69.5 billion yen for the same period in 2009. Nintendo’s sales for the first half of its financial year were down 34% to 363.16 billion yen.

Nintendo’s prospects have been hurt by the yen, but more importantly its Wii and DS products are aged. They were once at the cutting edge of gaming and handily outsold rival Xbox 360 consoles from Microsoft (NASDAQ: MSFT) and the PS3.

It took more than two years, but the two rival companies dropped prices and added features. The new Microsoft Kinect is aimed at the heart of Nintendo’s market for motion-sensing games.

Both Sony and Microsoft have already added functions that allow broadband streaming of content, DVD playback, and the ability to play games with others over the internet. The Wii has not become more like the Xbox 360 and PS3. Those consoles have become more like the Wii.

Nintendo blamed its poor earnings on a drop in demand for its Wii console and a delay of its new 3D machine. But, the problem is more complex than that. Nintendo elected to sit on its lead and largely ignored the fact that its rivals had benchmarked Wii functions and had begun to add them to their own products.

Nintendo is an example of everything that a company like Apple is not. Apple rode the success of its iPod multimedia player to the iPhone, iPad, and better sales of its Mac computer. It used it strong brand to launch consumer electronics products and handsets one after another. Nintendo built a brand which could not be rivaled in the game and entertainment electronics business. It then proceeded to do absolutely nothing with that advantage.

Douglas A. McIntyre