Nintendo Widens Full-Year Loss Forecast, Cuts 3DS Estimate

Nintendo Co. (7974), the world’s largest maker of video-game machines, more than tripled its full-year loss forecast as the success of Apple Inc. (AAPL) devices erodes demand for the company’s 3DS handheld player.

The net loss in the year ending in March may be 65 billion yen ($838 million), compared with an earlier forecast for a loss of 20 billion yen, the Kyoto, Japan-based company said in a statement today. Today’s figure was more than the average loss of 29 billion yen forecast by 18 analysts tracked by Bloomberg.

President Satoru Iwata, who cut 3DS prices by as much as 40 percent last year, said he expects full-year sales of 14 million units for the device that shows images in 3-D, down from an earlier forecast of 16 million. The creator of “Super Mario Bros.” games is predicting its first annual loss in at least three decades because of a surging yen and a consumer preference for gaming on the iPhone and iPad that helped Apple more than double profit in the quarter.

“The company faces a structural problem that people are opting for their smartphones and tablet PCs to kill their time,” said Mitsushige Akino, who oversees about $600 million at Ichiyoshi Investment Management Co. in Tokyo. “I can’t see Nintendo’s next strategy. There will probably be a discussion about how much worse it can get.”

Forex Loss

Nintendo’s U.S.-traded depositary receipts dropped 6.9 percent to $16.34 at 2:39 p.m. in New York. Each depositary receipt equals 0.125 ordinary shares, according to data compiled by Bloomberg. In Osaka before the results, Nintendo fell 0.9 percent to 10,750 yen at the close of trading. The stock dropped 56 percent last year, erasing about $24 billion in market value.

“It took time for us to revive sales momentum” after the 3DS price cuts because the company was “a little bit late” in introducing titles featuring the Mario character, Iwata told reporters in Osaka.

Operating loss in the year ending in March may be 45 billion yen, compared with an earlier estimate for a profit of 1 billion yen, according to the statement. Nintendo today also reported a nine-month net loss of 48.4 billion yen, compared with a profit of 49.6 billion yen a year earlier.

Nintendo had a foreign exchange loss of 53.7 billion yen in the nine-month period. Nintendo based its annual forecast on the exchange rate of 98 yen to the euro, compared with an earlier forecast of 106 yen. The company kept its rate of 77 yen to the dollar.

Price Cut

“Nintendo’s profitability may get lower in the long term because people are starting to stay away from video-game consoles,” Tomoaki Kawasaki, a senior analyst at Cosmo Securities Co. in Tokyo with a “neutral” rating on the stock, said before the earnings release. “The yen’s gain is a burden for Nintendo as it hasn’t taken sufficient measures to deal with the impact of the strong currency.”

Nintendo generates about 80 percent of revenue outside Japan, and a stronger yen reduces the repatriated value of overseas assets. The yen has gained 5.6 percent against the dollar and 10 percent versus the euro in the past 12 months, the best performer among 11 Asian currencies tracked by Bloomberg.

The console maker hasn’t reported a full-year net loss since 1981, when it began releasing consolidated earnings, according to its website.

Nintendo cut the price of the 3DS, which allows users to see 3-D images without wearing special glasses, by 40 percent to 15,000 yen in Japan in August. The company reduced the price in the U.S. to $170 from $250.

Nintendo sold 11.4 million units of the 3DS handheld player, released in February, in the nine months ended Dec. 31.

Smartphones

Wii sales in the nine-month period fell 35 percent to 8.96 million units. The Wii U console, Nintendo’s successor to the Wii, will be introduced in time for the Christmas shopping season, Iwata said.

Users are increasingly turning to playing on devices from Apple, whose App Store offers more than 100,000 game and entertainment titles for the iPhone, iPad and iPod Touch. Apple on Jan. 24 reported sales of 37 million iPhones in the quarter ended Dec. 31, helping its profit surge to $13.1 billion in the period.

Sony Corp. (6758), whose PlayStation Vita portable player competes with the 3DS, is scheduled to release results on Feb. 2.

“Monster Hunter 3 (Tri) G” sales topped 1 million units in the 10 days after it hit the market on Dec. 10, the game’s creator, Capcom Co. (9697), said Dec. 21. “Super Mario 3D Land” and “Mario Kart 7,” introduced in November and December, respectively, each sold more than 1 million units in the U.S., Nintendo said Jan. 3.

Sales of titles for the 3DS may total 38 million units this fiscal year, down 24 percent from the company’s previous estimate, Nintendo said today.

Iwata said he is confident the company will turn profitable next year. Nintendo will “soon” start charging users for downloading additional content to a software title, Iwata said.

“We aim to keep sales momentum of the 3DS by introducing main software titles regularly and expanding digital business for the 3DS,” Iwata said.

To contact the reporters on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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