Satoru Iwata Explains Reduced Projections and "Large Margin" 3DS and Wii U Sales Misses

Wii U hardware and software sales suffered "a huge gap" from their targets

Nintendo has issued a financial update with major reductions in sales and financial projections, stepping in ahead of its Q3 report at the end of January. In all likelihood this was to head off speculation following yesterday's NPD results, which would have combined with known figures from around the world to raise serious doubts over Nintendo's ambitious estimates — revealing likely losses and disappointing sales prior to the Q3 announcements also gives Nintendo time to gauge its response in the upcoming shareholder and management briefings.

Alongside these amended financial projections, Nintendo has also issued a statement from company President Satoru Iwata. Below are some key segments:

Giving a detailed explanation on our sales performance in and leading up to the year-end sales season by platform, Nintendo 3DS continued to show strong sales in the Japanese market. The unit sales for Nintendo 3DS in the previous calendar year amounted to approximately 4.9 million units, falling short of our aim of five million units by a small margin. However, as I explained before, given that every gaming device from the year 2000 onwards apart from Nintendo DS and Nintendo 3DS did not reach sales of four million units even in their peak years, we can say that the sales figure for Nintendo 3DS in the last calendar year was indeed very high. However, outside Japan, while its market share increased as we continued to release compelling titles throughout the year, Nintendo 3DS did not reach our sales targets in the overseas markets, and we were ultimately unable to achieve our goal of providing a massive sales boost to Nintendo 3DS in the year-end sales season. Using the U.S. market as an example, Nintendo 3DS became the top-selling platform in the last calendar year, according to NPD, an independent market research company, with its cumulative sales exceeding 11.5 million units; however, the estimated annual sales of the Nintendo 3DS hardware remain significantly lower than our initial forecast at the beginning of the fiscal year. In Europe, while the individual markets showed different results, France was the only market in which we experienced relatively strong sales, and we failed to attain our initial sales levels by a large margin in other countries.

Wii U sales, on the other hand, showed some progress in the year-end sales season as we released various compelling titles from the summer onwards, launched hardware bundles at affordable price points and also performed a markdown of the hardware in the U.S. and European markets; however, they fell short of our targeted recovery by a large margin. In particular, sales in the U.S. and European markets in which we entered the year-end sales season with a hardware markdown were significantly lower than our original forecasts, with both hardware and software sales experiencing a huge gap from their targets. In addition, we did not assume at the beginning of the fiscal year that we would perform a markdown for the Wii U hardware in the U.S. and European markets. This was also one of the reasons for lower sales and profit estimates.

We therefore modified our unit sales estimates in accordance with our performance in the year-end sales season and after the turn of the year, and the drop in software sales had the largest negative effect on our profit forecasts.

...As for advertising expenses, and research and development expense forecasts, we made revisions to increase them by eight billion yen and 15 billion yen respectively from their forecasts made at the beginning of this fiscal year. We expect advertising expenses to increase due to the effect of the expenses incurred in foreign currencies to be converted into Japanese yen by using weaker yen rates. The estimated increase of research and development expenses is based on reflecting our ongoing enhancement of the development structure, and new research and development activities. These increases contributed to lowered estimated profit forecasts.

...We will provide more information on our short-term as well as mid-term prospects at the Corporate Management Policy Briefing to be held on January 30, 2014, which will take place in Tokyo a day after we announce our financial results for the third quarter.

Due to the realities of corporate business, the Q3 briefings at the end of January will be highly pressurised for Nintendo, as a result of the scale of these reductions and, as Iwata-san's own statement makes clear, "large margin" misses. It's absolutely clear — from the statement above and sudden about-turn in estimates — that Nintendo expected an outstanding period of Holiday sales, as it maintained confidence — at least in public — in its initial projections through the first two quarters of the financial year, up to 30th September 2013. Although the company obviously has a strong legacy of financial and commercial success, with substantial cash resources as a result, there's little doubt that these new figures will put a great deal of pressure on Nintendo's management and future plans.

We'll share some of our own perspective on these results and statements later today, but let us know what you think below.


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