News Article

Talking Point: Nintendo's Lower Expectations Are No Surprise

Posted by Thomas Whitehead

Nintendo isn't doomed, though

Today Nintendo issued its third quarter financial results, showing where the company stands in terms of profits and sales. To get the positive out of the way and to avoid any confusion, the company is now projecting a net income profit of 14 billion Yen - over $150 million dollars at the time of writing. In summary, that should mean happy shareholders, along with Nintendo having more in the bank than it did at the end of the last financial year.

That's a big positive for the company, and perhaps something lost in our original article about the results; our focus drilled down onto operating income. The overall and most interesting revelation, in our view, is that Nintendo has switched projections for its operating income from an expected profit of 20 billion Yen (over $200 million) to a loss of the same amount; that represents missed targets. Yes, the company as a whole looks set to make a profit, but that's down to "exchange rate assumptions" and probably financial management arrangements that we won't pretend to understand. The reason that operating income is relevant is because it's a direct reflection of the nuts of bolts of Nintendo's business — selling video games and the systems on which they're played.

Here's what Nintendo had to say about sales so far and projections for the financial year results, before we get to detail - "The earnings forecast has been modified to reflect a lower-than-expected sales outlook based on the sales performance in the year-end sales season and afterward." However you slice it, Nintendo is admitting that its sales are going to be lower than hoped. This doesn't spell the apocalypse, far from it, but will serve as a reminder for Nintendo — though we doubt it was required — that big moves are needed in the 2013 to get Wii U, in particular, back on the track that Satoru Iwata and his colleagues expect.

What we've seen today is Nintendo cutting its sales projections across the board for its systems and related software, with Wii U grabbing the headlines. In the interest of clarity, below are the changes in projected financial year sales (up to 31st March) from Nintendo's second quarter results to those third quarter equivalents issued today.

Wii U:

Q2 hardware projection = 5.5 million units
Q3 hardware projection = 4 million units

Q2 software projection = 24 million units
Q3 software projection = 16 million units

3DS:

Q2 hardware projection = 17.5 million units
Q3 hardware projection = 15 million units

Q2 software projection = 70 million units
Q3 software projection = 50 million units

Wii:

Q2 hardware projection = 5 million units
Q3 hardware projection = 4 million units

Q2 software projection = 50.05 million units
Q3 software projection = 50 million units

DS:

Q2 hardware projection = 2.5 million units
Q3 hardware projection = 2.3 million units

Q2 software projection = 37 million units
Q3 software projection = 33 million units

Despite a net profit, as mentioned earlier, these are the figures that perhaps get to what we really need to know. It's important to keep context and not go off the deep end — as a company Nintendo is secure — but at the same time we shouldn't ignore the problems that these figures show. In the space of three months Nintendo has reduced expected sales in every hardware and software department, which accounts for the shift downward in its operating income projection.

While the 3DS could be doing better, particularly in software sales, it at least is on solid ground, with sales about to pass 30 million units. It's admittedly a little reliant on Japanese sales, with Nintendo's homeland contributing more sales than both The Americas and "Other" regions — including PAL territories — on an individual basis, a shift from the equivalent period in the last financial year when Japan contributed the least. Monster Hunter 4 is likely to see that continue, while a number of big releases such as Animal Crossing: New Leaf should help in the West — we'd also be surprised if a blockbuster title isn't unveiled for the Holiday season.

It's with the Wii U, described in the report as having a "negative impact on Nintendo’s profits", that the greatest challenge is faced. The bold target of 5.5 million units sold has now been reduced, with three million units sold up to the end of December. That's not bad in itself — though likely reflects units shipped to retailers, rather than sales to customers — but the scaling back of expectations does reflect an acknowledgement from Nintendo of low momentum. It expects to shift roughly one million units from 1st January 2013 to 31st March, which blows no-one away.

One of the answers to this problem is rather simple — games. Satoru Iwata acknowledged as much during the recent Wii U Direct, apologising for a perceived delay in new games from Nintendo, before promptly breaking out some major announcements, some of which should arrive in 2013. It seems that most Nintendo gamers got rather excited about the reveals, which bodes well for the company. We also feel that there are some games that could arrive in the next two months and provide a welcome bump in sales, some of which we listed in our biggest Wii U games of 2013 article posted at the start of the year. Some titles are unconfirmed or coming in the next quarter, but it'll be interesting to see whether releases such as Rayman Legends, Monster Hunter 3 Ultimate and, possibly, Wii Fit U lead to increased momentum for this year's results. The latter is a title that served Wii very well in the West, so if it arrives this quarter it could help to attract some Wii-upgraders.

Time will tell, both in terms of these remaining launch window releases and the big hitters coming in 2013. What today's results have done is show us an increasingly realistic Nintendo. Its financial reports have been characterised in the past couple of years with bold predictions, and on consecutive occasions estimates have been lowered with each subsequent report. Whether the continual downgrading of expectations reflects a decline in Nintendo as a business is all about perspective and opinion, but it's possible to argue that these revisions reflected adjustments for over-ambition. After dominating the industry with Wii and, particularly, the DS family, Nintendo was unsurprisingly optimistic for 3DS and Wii U.

There's no need for that optimism to stop completely, but today shows that Nintendo is moving towards lower targets to hit, perhaps in the hope that some can actually be beaten when the final results emerge in a few months time. Nintendo isn't in significant danger at this stage, we'd argue, but it's existing in a new reality and market, in which game console manufactures face unprecedented and diverse levels of competition from industries such as smartphones and tablets — tough economies worldwide also don't help. Despite this the 3DS is still selling and has an install base of nearly 30 million, in an age of many rival systems; Wii U faces its own challenges, but the recent Wii U Direct broadcast suggested that the big N's up for the fight.

Today's report showed that Nintendo has, as far as we understand it, cash and deposit assets of around $5.5 billion (that's a billion as 1000 million), with total net assets — which includes properties etc — listed as sitting at over $13 billion. While the Wii and DS levels of success will be extremely hard to repeat, Nintendo has the means and, it seems, reasonable expectations that should allow it to continue in the industry for a long time yet.

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User Comments (54)

Knux

#1

Knux said:

Nintendo's success will be based on a single important factor, which are games.

SteveW

#2

SteveW said:

If they ever get around to announcing that the Wii U will be able to play the 3DS games it will create a lot more sales.

Inev

#3

Inev said:

15 million 3DS systems...you could probably build a small mansion with those.

On an unrelated note, I wonder if companies like Nyko will ever make a third-party Wii U gamepad?

RCMADIAX

#4

RCMADIAX said:

I was going to ask someone about how much cash Nintendo has in the bank and this article answers that. Thank you.

Burning_Spear

#6

Burning_Spear said:

It's now apparent that last week's Wii U Direct was a preemptive move to assure shareholders that missed revenue goals were being addressed.

LunaticPandora

#7

LunaticPandora said:

they might want to try actually releasing some damn games for once and then maybe they wouldn't have to suffer losses.

AyeHaley

#8

AyeHaley said:

13.000 million...from which is 5500 million in cash and deposits..Nintendo is safe for a long time...13.000.000.000.....

Ryno

#9

Ryno said:

@LunaticPando: The droughts for the Wii were pretty bad.

Also, for Nintendo to only release only 2 "big name" first party titles at Wii U launch was silly.

Mk_II

#10

Mk_II said:

"possibly" Wii Fit U? You can bank on that, the original Wii Fit made Nintendo a shipload of money in hardware sales to non-gamers.

Jr-Joe

#11

Jr-Joe said:

games - unsatisfactory as of yet
online service - is outdated
console name - should've been Nintendo U (no confusion with wii)

Discostew

#12

Discostew said:

Considering this time of the year is slow for all game companies, it's not a big surprise that they over-predicted (which all companies do as well).

LunaticPandora

#14

LunaticPandora said:

@Ryno_Choryzo agreed, but lets be real here - nintendoland isn't exactly a "big name" title if you ask me. to the average consumer, it probably looks like your run-of-the-mill minigame compilation with nintendo franchises. oh and releasing 2 NSMB's in one year is quite possibly the stupidest thing they could've done, especially considering NSMB2 suffered as a result.

Zach

#15

Zach said:

I dont know, maybe Nintendo should just make software and peripherals from now on

Rapadash6

#18

Rapadash6 said:

Nintendo has the capital to bounce back, even if it does take a couple of years. I think the main problem is that Nintendo had been so focused on getting out new hardware with the 3DS and Wii U, that the software side had to take a backseat. As we've seen with the 3DS, good software, and a massive price cut, brought it back to profitability, and last weeks direct gave us hope that the same will happen with the Wii U. Nintendo is both a hardware and software company, and having to change cycles hurt them due to the publics reluctance to invest in costly new systems, which can be blamed mostly on the economic climate as of right now. Over time, however, Nintendo will be able to offer price cuts, new and better software, and more efficient firmware, which will help to gradually grow the Wii U's install base. Again, because Nintendo has massive amounts of assets, they have time on thier side.

NinGamer85

#19

NinGamer85 said:

Their original predictions were high and the market is tough right now. March should see a significant spike in hardware and software as income tax returns come and more people are back on track after the holidays. This happens every year the economy slows in Jan. and Feb. it just hit Nintendo more because the new console was out. Nothing was going to repeat the original Wii.
Most online reviews are also incredibly harsh imo. Nothings perfect at launch anymore and my Wii U turned on, played games, connected to Miiverse and was ready to go in less than an hour with the update. Anyone denying the dual screen experience either hasn't tried it or doesn't know how to use it. And as games are developed to take advantage of the hardware architecture the Wii U will turn heads and impress like many Wii games did even at 480P. By the end of 2013 Wii U will be on top.

WaveWarlock

#20

WaveWarlock said:

The Wii had droughts? Damn, i guess I wouldn't know considering i was too preocuppied with the enormous VC catalogue half the time. I got the Wii in Christmas 07' and there wasn't a single moment where i had nothing to play. I was juggling the Wii and DS back and fourth and there was more than enough games . Hell, I've got quiet a few more to play.....Close to about 30 games, + a butt load on the VC and several titles on WiiWare.

DerpSandwich

#21

DerpSandwich said:

There's really just not a lot coming. 3DS will do alright with Animal Crossing and Luigi's Mansion, and right now with Fire Emblem, but that means I'm personally looking at only three games that interest me in the span of a year (two and a half if you count that fact that I'm not completely sold on FE yet). And for Wii U? Pikmin 3, for me. Nothing that sounds like a system-seller coming this year. And all the games they mentioned during the Nintendo Direct are probably not coming for a few years still. Nintendo is famous for revealing games only to release them multiple years later, so I really can't see Wii U selling well this year unless they really surprise us with some stuff that comes this holiday season.

TheXboxHero

#22

TheXboxHero said:

I promised myself that Im not losing hope with Nintendo and they proved to me like they can catch up with all the current consoles.

FluttershyGuy

#23

FluttershyGuy said:

I think their were projections were... optimistic... to put it lightly, considering the present economy, not just in the US, but in the world. Here in America, the jobs aren't there, jobs are being eliminated, benefits scaled back, and income taxes are going up for many (not just rich folks) as a result of the "fiscal cliff" negotiations. Leisure spending money is just... not... there for people. The Wii U was my SOLE extravagant purchase last year, and even then I have guilt trips over it. This year, if things don't change, I'll be lucky to get 3 or 4 new games. They need to consider a price drop, because otherwise it's a difficult purchase in this economy.

And the next gen PlayStation & Xbox? If they charge in the neighborhood of what Sony did for the PS3, sales of both systems may make the Vita's paltry numbers look more like the PS2's historic sales by comparison.

THIS is why cheap cell phone games are popular right now, and software sales are down. A couple of dollars is all a lot of people can spend on gaming. :(

Ryno

#24

Ryno said:

@WaveBoy: For you the Wii didn't have droughts. Hell, you would play "MIghty Morphin Power Rangers Bake Sale* if it had had motion and pointer controls! :P

WaveWarlock

#25

WaveWarlock said:

@DerpSandwich
You're being foolish if you truly think that's all there is left for the 3DS this year.
Nintendo will obviously reveal some huge suprises during E3 in June, most of which will most likely be released during Fall and Christmas. Cheer up sweety! lol

WaveWarlock

#26

WaveWarlock said:

@Ryno_Choryzo
That game would sell like hotcakes, especiallly if it included Kimberly's hockcakes. :p Personally, I'd rather play ALF bowling.lol

But really, there are a lot of gamers on here who play for hours on end and continuesly want more, more and more and it's never good enough, combined with their ridiculous and extreme expectations. I'm not saying you obviously, your time is most likely limmited because you have a family and because you keep that balance which is great. I maybe throw in 2 hours, maybe 3 into a gaming session whenever i do game and have the extra time, in comparison to some of these guys who go 8 hours head on. I wish I'd be more on the ball though, i tend to play the big hits months after their release. I get too caught up in Retro-Rad Video Land to the point where these great modern titles get the shaft. The last modern title i played was Rayman Origins and that just left a bad skunky taste in my mouth.

Mega Man X2 was basically the big band-aid that got my groovy gaming mojo back in tact.

dragon_rider

#27

dragon_rider said:

@Happy_Mask You mean dragons from Anne McAffrey's series of sci-fi novels? Because that would be awesome, though I'm sure we'd need clearance from the FAA to ride them.

Dogpigfish

#28

Dogpigfish said:

Simple, open it up to garage developers then take it in. Follow Steve Job's growth model.

BlueNitrous

#29

BlueNitrous said:

@DerpSandwich There is a LOT more games coming for 3DS and Wii U. For example:
Monster Hunter 3 Ultimate (both versions)
Etrian Odyssey IV
Rayman Legends
Pokemon X/Y
The Legend of Zelda: Wind Waker HD
Luigi's Mansion: Dark Moon
I don't know about you, but I'm set for the whole year!

WaveWarlock

#30

WaveWarlock said:

@Le_Wario26
Aside from Pikmin 3, don't forget Resident Evil: Revelations, Game & Wario, Yoshi's Yarn, Wii U Party, The Wonderful-101 and Bayonetta 2. AND the giant slew of exciting NEW Wii U(3D Super Mario U and Mario Kart U reveal ect ect) and 3DS suprises that await us at E3.I've got nothing to complain about! This isn't the N64 era people.lol I've got more than enough games to play....Too much in fact. Now If Aliens: Calonial Marines doesn't support Wii remote pointer controls as an optional control scheme THEN I will let out a teeny weeny' bit of gamer rage, and completely pass on it all together. :p

WaLzgiStaff

#31

WaLzgi said:

I see this "lack of games for a year" argument every January, and yet Nintendo reveals more games at e3...every year. Patience is a virtue (and deserves a medal if properly done on the internet) :P

NinGamer85

#33

NinGamer85 said:

@LordLzGlad Hilarious and also true. Games will be shown in June that release before the end of the year...I'm betting on a 3ds Zelda title suprise. I also think that third party developers will come at E3 and show some new games. Games are coming...and plenty of system sellers. Bayonetta 2, Mario, WW HD, Mario Kart, possibly Xenoblade, I'm not worried.

Neram

#34

Neram said:

I still say the reason for 3DS and Wii U not selling as well as DS and Wii are because of customer confusion or lack of interest. I'm sure there are hundreds of thousands of people out there who still think the 3DS is just a DS hardware revision, or that the Wii U is an unnecessary peripheral that comes bundled with the Wii. If Nintendo is surprised that their new platforms aren't selling like the mega-hit platforms of last generation, well then I'm just as surprised to see them surprised, given the lack of marketing clarity surrounding the 3DS and Wii U. Naming their platforms "3DS" and "Wii U" are new yet familiar, sure, but maybe they were too familiar for their own good.

Burning_Spear

#35

Burning_Spear said:

Respectfully disagree. I think the current consoles are targeted to less "casual" gamers and that a big share of that market is content to play its casual games and not upgrade.

asusanto

#36

asusanto said:

Wii fans here still expecting the big sales of Pandorra's Tower that would be released in April. It could be a huge help for Nintendo's net income like what they did for Xenoblades and The Last Story.

Slapshot

#37

Slapshot said:

@asusanto Nope, Pandora's Tower will be a very limited release in the US. If you want to get your hands on it - you better place your preorder ASAP!

Ryno

#38

Ryno said:

@Wavey: Oh yeah, when I mentioned the "Wii had droughts", I meant specifically the big 1st party money maker grove shaker hits from the Big N themselves. As it is, you and I can't even keep up but there are those extreme game-on all-the time gamers who cannot go longer than a month without opening up there wallets for a new game.

Hardy83

#39

Hardy83 said:

Wow. Small drops for hardware sales, but pretty big drops in software sales expectations.

I guess they learned what will happened from the Wii. People buy Nintendo hardware for Nintendo games.

Emaan

#41

Emaan said:

2013 will be awesome for Nintendo, with the games they're releasing at least. Best of luck to the Wii U in catching on with this difficult market.

GreenDream

#42

GreenDream said:

Those projections for the DS and Wii hardware and Wii software are EXTREMELY generous...

I think only the 3DS will meet these expectations; paradoxical, since it has the highest expectations...

Ren

#44

Ren said:

It's not JUST games, sure that's annoying but there are so many things wrong that I could see coming a mile away. Before it launched I played demos and it just wasn't enough to pull anyone from the HD systems that are already great, with big libraries, cheap games, and lots of other great WORKING services. once again Nintendo has misjudged the market. Now people finally DO use these things for movies and other media and they've all but shut out (or released unready) the media stuff (no disc player, late movie services). Also now that storage is cheaper and it's expected with so much DL content they release a machine with hardly any? And the marketing has the same cheesy families and people playing with Wii remotes? what did they think would happen? I waited a long time then gave up and got an xbox, and now I'm almost more willing to wait for the inevitably better next system since nintendo was so late to HD. I was ready for HD almost 2 years ago and I still waited, but finally gave up on it. I'll reconsider when it's cheaper and theres more stuff for it.

Dauntless

#45

Dauntless said:

Nintendo needs to work hard to fix all their mistakes. The casual crowd isn't there to bail them anymore. I don't see it happening anytime soon though. They might get it right when its too late, and MS and Sony are in full motion with their next systems.

yobucky

#46

yobucky said:

Well the one advantage being that they do have a longer lead to get it right before the other next gen consoles launch, remember how long it took the PS3 to find it's feet? As long as they keep backing it to come right then it won't be a repeat of the Saturn/ dreamcast disaster, where sega basically lost faith in their own products and as a result fans did too.

MarioKenny1992

#47

MarioKenny1992 said:

@EvisceratorX I agree, but I can kind of understand why they decided to go with the Wii U moniker. name doesn't matter that much to me though

@Emaan yeah, 2013 will be great for Nintendo! they've got a busy year but it'll most likely be worth it in the end ;)

Zombie_Barioth

#48

Zombie_Barioth said:

The fact of the matter is with money being tight people are looking for the best bang for buck and there are other things out there that does what the Wii U does, but is more affordable while doing it just as well if not better.

The Wii sold just as much as the Wii U but twice as many games, which proves there are many people opting for the cheaper option with more (and cheaper) games. I'm sure the same is true for the rest of the industry and wouldn't be surprised to see more people move to handhelds or PC since they also offer a more affordable yet comparable experience.

drunkenmaster76

#49

drunkenmaster76 said:

The casual gaming market was a fad and is coming to an end for console gaming all the granny's & grandads who were playing wii are now playing on there ipads, iphones. Most of the people who own wii u are probably long time nintendo gamers, "hardcore" gamers. I also think Nintendo have released there best console to date, its just that the games are not there yet.
Wii u, Creepin on a come up.

jayblue

#51

jayblue said:

the problem the now is nintendo selling old 360 and ps3 games which have been out for ages at full price,not to mention the price of games on the nintendo downloads which are hitting 50 notes.when will we learn not to pay silly prices.drop prices and see sales go up not rocket science.

Awesoman

#52

Awesoman said:

The Wii U is probably Nintendo's first console system I have had little to no interest in purchasing. I may pick one up when some good games come along, but it sounds like this system will probably be dead in the water hardware-wise once Sony and Microsoft unveil their new systems, which will be soon.

StarDust4Ever

#53

StarDust4Ever said:

I was there for Nintendo during it's underdog years, and I'll be there for them once again. Yes, DS and Wii showed tremendous success during the 7th generation. Nintendo has always been #1 since the Game Boy years, as far as handelds go, but mobile gaming serves to take a "byte" out of those sales. Xbox720 and PS4 serve to stagnate the market, especially if the rumours that 720's "download only" and PS4's "disc games tied to one console" philosphy is true. PS1-PS2-PS3 and Xbox-Xbox360 have done little to innovate, with Nintendo being the lone standout who refuses to play by the big giants' rules (Microsoft, Sony, and now Apple).

People claimed last gen that the video game market was leadingto another crash, but I don't necessarily think that's true. Games have gotten too big, too complex, long, and expensive for the present day economy, in a world of casual games and 99 cent downloads. I believe a return to simpler controls and pick-up-and-play style games (think 8-bit/arcade generation but with better physics and graphics) is in order. The smaller divs are doing it right.

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