Oct. 30 (Bloomberg) -- Nintendo Co., the world's second largest maker of home video-game players, cut its full-year profit forecast and dividend after the yen's gains eroded earnings and the value of its overseas bank accounts.

Net income will probably rise 34 percent to 345 billion yen ($3.5 billion) in the year ending March 31, the Kyoto, Japan- based company said today. The forecast is 16 percent below the company's Aug. 29 projection and 6.8 percent less than the median estimate in a Bloomberg survey of five analysts.

The yen's 27 percent surge against the euro and 14 percent jump to the dollar this year led the maker of Wii and DS players to lower its profit forecast two months after raising the outlook. The Japanese currency's gain cut the value of exports, overshadowing demand for the Wii that's rising more than the company had projected.

``I'm planning to reduce the portion of Nintendo shares in my portfolio, depending on the euro's move,'' said Mitsushige Akino, who oversees about $468 million at Tokyo-based Ichiyoshi Investment Management Co. ``With the euro weakening to this extent, investors already sensed Nintendo couldn't avoid reducing earnings targets, as shown by the stock's recent decline.''

Nintendo climbed 11 percent to close at 30,600 yen before the company's announcement, while the benchmark Nikkei 225 Stock Average gained 10 percent. The stock has dropped 54 percent in 2008 after more than doubling in each of the past two years.

`Huge Movements'

The reduced earnings forecast ``was the result of the huge movements in financial markets that happen once in several decades,'' Nintendo President Satoru Iwata told reporters in Osaka. ``I want to focus on our business and hope the economic, financial and foreign-exchange situation settles down soon.''

The company cut its forecast for operating profit, or sales minus the cost of goods sold and administrative expenses, by 3.1 percent to 630 billion yen and kept the sales projection at 2 trillion yen. Nintendo reported operating income of 487.2 billion yen and revenue of 1.67 trillion yen a year earlier.

The console maker reduced its annual dividend forecast to 1,630 yen this fiscal year, 50 yen less than projected on Aug. 29.

The yen, recently at 98.7 to the dollar and 130.3 against the euro, is the best performer this year among major currencies tracked by Bloomberg. A stronger yen cuts the value of overseas earnings when they are repatriated.

Nintendo forecast the dollar to be at 100 yen and the euro at 140 yen at the end of March, compared with 105 yen and 160 yen projected in August.

Exporters Hit

Japanese exporters including Mazda Motor Corp., Konica Minolta Holdings Inc. and Nikon Corp. also cut their earnings forecasts today on the yen's appreciation.

Nintendo said it booked a one-time charge of 33.6 billion yen in the first half ended Sept. 30 on a decline in value of foreign-currency cash holdings.

As of the end of September, Nintendo had foreign-currency cash and deposits worth $1.86 billion and 2.32 billion euros ($3 billion), according to company figures.

For the three months ended Sept. 30, Nintendo's net income dropped 28 percent to 37.6 billion yen. Sales climbed 17 percent to 413.5 billion yen, and operating profit increased 35 percent to 133 billion yen. Figures were derived from first-half earnings the company released today.

First-half sales of the Wii rose 38 percent from a year earlier to 10.1 million players and those for the DS gained 2.8 percent to 13.73 million, Nintendo said.

The console maker projected Wii sales will climb 48 percent to 27.5 million machines this fiscal year, raising the figure from 26.5 million estimated in August.

Nintendo maintained its forecast for sales of the DS, introduced in December 2004, to rise 0.6 percent to 30.5 million players.

``The days when Nintendo attracted customers as effortlessly as gathering grains with a wet hand have gone,'' Ichiyoshi's Akino said. ``Their game machines no longer have the same impact on consumers as they had when they were first released.''

To contact the reporter on this story: Hiroshi Suzuki in Tokyo at Hsuzuki5@bloomberg.net.

Last Updated: October 30, 2008 05:36 EDT