Nintendo Misses Estimates as Apple Lures Gamers Away

Nintendo Co. (7974), the world’s largest maker of video-game machines, forecast profit this fiscal year that missed analysts’ estimates as consumers increasingly play games on mobile devices including Apple Inc.’s iPhone.

Net income may total 20 billion yen ($246 million) for the year ending March 31, the Kyoto, Japan-based company said in a statement today. That compared with the 32.9 billion-yen average of 20 analyst estimates compiled by Bloomberg. The company’s forecasts for sales and operating profit also missed estimates.

Apple reported a 94 percent jump in quarterly profit this week while Nintendo is recovering from its first annual loss as more game players go online using iPhones and iPads. The creator of “Super Mario” predicts a 37 percent jump in sales of its 3DS handheld model, and the introduction of the Wii U console, will drive a return to profit.

“Nintendo isn’t exempt from the impact of smartphones and tablets,” said Naoki Fujiwara, who helps manage $6 billion at Shinkin Asset Management Co. “The company’s performance will be determined by the 3DS, which will probably be profitable this year, and new products as well as the currency.”

Nintendo plans to sell 18.5 million units of the 3DS and 10.5 million Wiis. The company sold 9.84 million Wii units last year, it said in today’s statement.

Net Loss

The net loss for the year ended March was 43.2 billion yen, compared with analysts’ estimate for a 58.1 billion-yen loss. It was the first loss since 1962 when Nintendo went public, Senior Managing Director Yoshihiro Mori told reporters today in Osaka, Japan.

“What went wrong was that sales of the 3DS didn’t take off as we expected,” Nintendo President Satoru Iwata said. “The stronger yen against the euro was also another reason.”

A strengthening of the yen against foreign currencies cuts the value of Nintendo’s overseas earnings when repatriated.

The company plans to introduce the 3DS in South Korea this week and in other Asian markets this fiscal year, Iwata said.

Nintendo rose 2.9 percent to 11,540 yen on the Osaka Securities Exchange before it released earnings. The stock has gained 8.9 percent this year, compared with a 4 percent drop by Sony Corp. (6758) and a 24 percent increase for Microsoft Corp. (MSFT)

Operating Profit

Operating profit, or sales minus the cost of goods sold and selling, general and administrative expenses, may total 35 billion yen this fiscal year, compared with a loss of 37.3 billion yen the previous 12 months, the company said. That missed the 42.2 billion yen average of analyst estimates.

Sales may rise to 820 billion yen from 647.7 billion yen, Nintendo said. Analysts had expected 842.8 billion yen.

Sales of the DS console, the predecessor to the 3DS, may plunge 51 percent to 2.5 million units, the company said. Software sales for the 3DS may more than double to 73 million units, while those for the DS may decrease 39 percent to 37 million.

“Nintendo will be regarded with some concern this fiscal year,” said Satoru Kikuchi, a Tokyo-based analyst at Deutsche Bank AG, who rates the stock hold. The 3DS and Wii U will erode sales of older models and the company will need to rely on having popular software, he said.

3DS Price

Iwata was forced to cut the price of the 3DS handheld player by as much as 40 percent within six months of the product’s introduction last year after sales failed to meet the company’s estimate. Nintendo plans to release the product, which allows users to see 3-D images without wearing special glasses, in Asia this fiscal year.

Nintendo, Sony and Microsoft, the world’s three biggest video-game console makers, are facing increasing competition from Apple (AAPL), whose devices are capable of downloading and playing games, some for free. By contrast, the software for the 3DS starts from about 4,000 yen.

The company also plans to introduce the Wii U in time for this year’s holiday shopping season, Iwata said in January.

The device’s centerpiece is a 6.2-inch touch-screen controller, roughly the size of a tablet computer, that lets users wirelessly connect to the console and shift content between a TV and the device, according to Nintendo. The machine will be equipped with a wireless credit-card reader to facilitate online shopping and downloads of new game levels.

Microsoft’s Xbox

The console, which Nintendo plans to unveil in June, faces tougher competition. Microsoft will release the next version of its Xbox console in 2013 at the earliest, as the company squeezes at least one more year of sales out of its current model, two people with knowledge of the matter said last month.

In the U.S., the world’s biggest video-gaming market, retail sales fell for four straight months, with March sales plunging 25 percent, according to NPD, a research firm in Port Washington, New York.

Retail sales of packaged video games have fallen sharply for about two years as consumers purchase games to play on smartphones and social networks such as Facebook Inc., NPD said.

Nintendo probably sold 235,000 Wii consoles and 240,000 3DS handhelds last month, Michael Pachter, an analyst at Wedbush Securities in Los Angeles, said in an April 9 research note.

Microsoft, based in Redmond, Washington, sold 371,000 Xbox 360 consoles, the company said April 12, citing NPD figures. Sony Corp. sold 325,000 PlayStation consoles and about 125,000 of its new PlayStation Vita handheld, Pachter 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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