Nintendo Posts First-Quarter Net Loss of $288.5 Million on Lower DS Sales

Nintendo Co., the world’s largest maker of video-game consoles, posted its first quarterly loss in more than two years as the stronger yen cut the value of overseas earnings and demand for DS handheld players fell.

The net loss was 25.2 billion yen ($289 million) in the three months ended June, compared with a 42.3 billion yen profit a year earlier, the Kyoto-based company said today. The game maker said it booked a foreign currency-related one-time loss of 70.5 billion yen.

Nintendo, which saw DS sales plunge 33 percent in the U.S. last month, said a lack of new game titles hurt revenue as it kept its outlook for annual profit to drop to the lowest in four years. President Satoru Iwata plans to introduce a 3-D model of the DS and a heart-rate-tracking “Vitality Sensor” accessory for the Wii console this fiscal year to revive earnings growth.

“The foreign-currency fluctuation exposure and sluggish consumer demand in the U.S. add up to a rather bleak outlook for the company,” said Kiyoshi Ishigane, a Tokyo-based senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $56 billion.

Nintendo today said the euro weakened to 107.81 yen in the quarter, from 124.92 yen as of March 31, while the dollar fell to 88.48 yen from 93.04 yen. A stronger Japanese currency reduces the value of Nintendo’s overseas sales. The company today maintained its full-year exchange-rate estimate at 120 yen for the euro and 95 yen for the dollar.

Stock Underperforms

Shares of Nintendo fell 1.5 percent to close at 24,620 yen in Osaka trading before the announcement. The stock has dropped 21 percent this fiscal year, compared with a 13 percent decline by the benchmark Nikkei 225 Stock Average.

Operating profit, or sales minus the cost of goods sold and administrative expenses, slumped 42 percent to 23.3 billion yen as revenue dropped 26 percent to 188.6 billion yen in the quarter, the company said. That’s worse than the 25.8 billion yen income average of four analyst estimates compiled by Bloomberg. The analysts expected 194.2 billion yen in revenue.

First-quarter sales of DS hardware dropped 47 percent to 3.15 million players, while those of software dropped 23 percent to 22.4 million units, the company said. Nintendo released 168 titles for the handheld player in the period, compared with 278 games a year earlier.

3-D Handheld Player

Nintendo in June said the 3DS handheld, going on sale this fiscal year, will allow users to see 3-D images without the need for special glasses. The product has three cameras and a motion sensor to create the 3-D effect.

The company will announce the price, shipment targets and release date for the device on Sept. 29, spokesman Yasuhiro Minagawa said by phone today.

“Many investors are in a tug-of-war between the outlook for a weak first half and expectations for the new DS model in the second half,” Mitsushige Akino, who counts Nintendo shares among the $450 million he oversees at Ichiyoshi Investment Management Co. in Tokyo, said before the earnings release.

Sales of the Wii rose 36 percent to 3.04 million consoles in the April-June quarter, bolstered by the release of “Super Mario Galaxy 2,” which sold more than 4 million copies in the period, Nintendo said. Wii software sales fell 9.3 percent to 28.2 million units, it said.

Increased Competition

Nintendo faces more competition than when it began sales of the Wii in 2006 and was the only major producer of motion- sensing personal-gaming machines. Sony Corp. and Microsoft Corp. plan to introduce their own motion-sensing accessories for their video-game consoles, while Apple Inc.’s iPhone and iPad devices are increasingly being used for gaming.

Sony, which has said it will update its software to allow PlayStation 3 machines to run games in 3-D, plans to start selling game titles as well as Bravia televisions capable of showing the format in June. PS3 users will have to wear special glasses to play 3-D games, the company said.

The Tokyo-based company, whose PlayStation 2 player dominated the previous generation of game consoles, is also introducing its “Move” motion-sensing controller for the PS3 to appeal to casual users and narrow Nintendo’s lead.

The black controller, resembling Wii’s wand with a colored ball at the top, will go on sale in the U.S. in September for $49.99, or $79.98 with a companion product, Sony said in June. More than 40 games for the new controller will be available for the U.S. holiday season, the company said at the time.

Sales at Sony’s Networked Products and Services Group, which handles PlayStation games, VAIO computers and Walkman media players, jumped 32 percent in the quarter on demand for the player and laptops, the company said today. It maintained its target to sell 15 million PS3 consoles and about 196 million games.

Microsoft plans to introduce its Kinect motion-sensing controller with a free game in November for $149.99, the company said in July. The Redmond, Washington-based company plans to include the product in a $299.99 package featuring the new, slimmer Xbox 360 console and the Kinect Adventures game, it said at the time.

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net.

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