Nintendo Posts First Loss in Three Quarters on Yen Gains

Nintendo Co., the world’s largest maker of video-game machines, posted its first loss in three quarters as the stronger yen eroded overseas earnings and its 3DS handheld player remained unprofitable.

The net loss was 17.23 billion yen ($220 million), the Kyoto, Japan-based company said in a statement today. That compared with the 16.4 billion-yen loss average of three analyst estimates compiled by Bloomberg and a loss of 25.5 billion yen a year earlier. Nintendo kept its full-year forecast for a 20 billion-yen profit.

A stronger yen, which cuts the repatriated value of Nintendo’s overseas sales, hampered efforts by the creator of “Super Mario” to recover from its first annual loss since being listed in 1962. The company cut the price of its 3DS handheld player less than six months after the device was introduced last year as sales lagged behind estimates.

“There’s a risk Nintendo may cut its full-year forecast,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo-based hedge fund advisory firm. “Nintendo faces additional fundamental problems as the video- game console market may shrink due to the rising popularity of smartphones and tablet PCs.”

First-quarter sales fell 9.7 percent to 84.8 billion yen, while Nintendo’s operating loss narrowed to 10.3 billion yen from 37.7 billion yen, according to today’s statement.

3DS Losses

The strong yen and losses from selling the 3DS contributed to Nintendo’s first-quarter operating loss, the company said in today’s statement. Nintendo cut the price of the 3DS, which allows users to see 3-D images without wearing special glasses, by as much as 40 percent last year.

Sales of the 3DS have surpassed 5 million units in the U.S. since the machine was introduced in March last year, Nintendo said earlier this month. In Japan, sales have totaled more than 6 million since its debut in February last year, according to Enterbrain Inc., a Tokyo-based market researcher.

The company “only” sold 1.86 million 3DS machines worldwide in the first quarter, during which it also released the game “Mario Tennis Open,” it said. The 3DS will be profitable starting this month, said Yasuhiro Minagawa, a spokesman.

Yen’s Rise

Nintendo’s U.S.-traded depositary receipts added 0.9 percent to $13.20 yesterday in New York. They have declined 22 percent this year.

The yen appreciated 9.4 percent against the euro last quarter, the most of any major currency, cutting the repatriated value of Nintendo’s revenue from Europe, where it got 34 percent of sales last fiscal year.

The yen averaged about 102.90 per euro and about 80.10 per dollar last quarter. The company based its full-year earnings forecast on exchange rates of 105 yen per euro and 80 yen against the dollar, it said today, reiterating currency assumptions made in April.

Holiday Season

Nintendo is counting on a 37 percent targeted increase in 3DS sales, as well as the Wii U, its first new home console since 2006, to help the company return to profit. The Wii U, set to go on sale in time for the Christmas shopping season, features 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.

The machine will also be equipped with a wireless credit- card reader for online shopping and downloads of new game levels.

Nintendo, Sony Corp. (6758) and Microsoft Corp. (MSFT), the world’s three biggest video-game console makers, face increasing competition from makers of handheld devices including Apple Inc. (AAPL)’s iPhone and iPad, which are capable of downloading and playing games, some for free. By contrast, software for Nintendo’s 3DS starts at about 4,000 yen.

Video-Game Sales

The video-game industry in the U.S. is experiencing a prolonged retail-sales slump as buying shifts to digital downloads and games played on websites including Facebook Inc.’s social-networking service, while sales of packaged video games have fallen for nearly two years.

Sales of games in digital format rose 10 percent to $1.38 billion in the first quarter from the same period in 2011, according to NPD, a research firm based in Port Washington, New York, estimated July 10. That compared with a 5 percent drop in spending on used and rental video-games, NPD said.

Nintendo’s latest releases include “Pokemon Black Version 2” and “Pokemon White Version 2” for the DS, and “Mario Party 9” for the Wii.

Third Place

Nintendo sold 9.84 million Wii machines in the year ended March 31, compared with 13.9 million PlayStation 3 consoles sold by Sony in the same period. Microsoft sold 14.9 million Xbox machines in 2011.

Nintendo plans to sell 18.5 million units of the 3DS, up 37 percent from last fiscal year, the company said today, reiterating its previous target. It wants to sell 10.5 million Wii home consoles, including the Wii U, this fiscal year.

“The company’s future is all up to the Wii U,” said Mitsuo Shimizu, an analyst at Iwai Cosmo Securities Co. “More and more kids are getting used to playing with smartphones. Nintendo may need to consider changing its business model.”

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

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

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.