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Nintendo Loss Bigger Than Estimated as Games Fail to Lure Users

Nintendo Co. (7974) posted a fourth-quarter net loss that was greater than analyst estimates amid flagging demand for its titles and as the company struggles to lure players back from inexpensive games on smartphones.

The world’s largest maker of video-game machines had a net loss of 33.4 billion yen ($329 million) in the three months ended March, compared with the 27.9 billion-yen loss analysts had estimated. Nintendo’s Germany-traded shares dropped.

President Satoru Iwata is struggling to revive the company’s fortunes as more people turn to games played on smartphones and tablets. Nintendo sold 2.72 million Wii U units in the year ended March, missing its own forecast set in January, which itself was lowered from before.

“They need a more radical strategy than staying within the realm of video games,” said Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners in Singapore. “The Wii U is dead and we know that, and 3DS games are getting totally cannibalized by casual games on the smart devices.”

Games played on Apple Inc. (AAPL) iPhones and handsets using Google Inc.’s Android operating system generated more sales than those on Nintendo and Sony Corp. (6758)’s handheld players for the first time last year, according to researcher App Annie Ltd. Wii U sales will recover to 3.6 million units this fiscal year as games including Mario Kart and Super Smash Bros. boost demand, Iwata said at a briefing today.

Photographer: Scott Eells/Bloomberg

Customers, including Jakub Gradowski from Poland, center, play Nintendo Co. Wii U video games inside a Nintendo World store in New York. Close

Customers, including Jakub Gradowski from Poland, center, play Nintendo Co. Wii U video... Read More

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Photographer: Scott Eells/Bloomberg

Customers, including Jakub Gradowski from Poland, center, play Nintendo Co. Wii U video games inside a Nintendo World store in New York.

Nintendo Forecasts

Nintendo’s German shares fell as much as 4.6 percent to 74.79 euros in Frankfurt trading.

The Kyoto-based company declined 2.7 percent to close at 10,670 yen in Tokyo trading before the announcement. The shares have dropped 24 percent this year and 76 percent since June 29, 2007, when Apple Inc. released the first iPhone.

Nintendo forecast it will sell 20 million software titles for the Wii U in the coming year. Sales projections for its 3DS handheld player are 12 million units and 67 million games in the same period. The company forecast net income of 20 billion yen in the same period, 25 percent more than analysts estimated.

“These forecasts are a daydream, it’s just like their forecast for 100 billion yen of operating profit last year,” Anvarzadeh said.

Nintendo has a history of making forecasts and cutting them later. The company forecast in October operating profit of 100 billion yen for the year ended March, which it later revised downward to a 35 billion yen loss. The company in January lowered its annual sales forecast to 2.8 million Wii U units from 9 million and cut in half its projection for Wii U game sales.

Super Smash

Nintendo’s slump can’t simply be linked to smartphone usage, Iwata said. “We don’t think the number of sales unit will be less than that of the previous fiscal year,” he said. “We made the forecasts carefully, considering the current situation.”

Nintendo will release Mario Kart 8 for the Wii U at the end of this month. The new Super Smash Bros. will be released for the 3DS this summer and for the Wii U this winter.

“Those two mega-titles will definitely help improve sales, but it’s sink-or-swim time,” David Gibson, an analyst with Macquarie Securities Ltd. in Tokyo, said before the earnings. “If they don’t work, you have a whole bunch of problems.”

Nintendo sales in the quarter fell to 72.6 billion yen, compared with the 86.1 billion-yen average of seven analyst estimates. Quarterly earnings figures were derived from full-year results posted today.

China Games

Nintendo is developing a “service application” for smart devices for release this year that will help strengthen the company’s ties with consumers, Iwata said in January. The company hasn’t ruled out the possibility of the application including games or Nintendo characters, though it doesn’t plan any outright release of titles for smartphones.

Competition is intensifying as casual gamers shift to smartphones and new devices such as Amazon.com Inc. (AMZN)’s Fire TV box that gives users access to thousands of releases. China’s three state-run carriers also plan to jointly publish as many as 100 mobile-phone games by the end of next year, a vice president at China Unicom (Hong Kong) Ltd. said May 5.

“Most companies have a fairly diverse product portfolio,” said Ben Bajarin, an analyst with consulting firm Creative Strategies Inc. “For Nintendo, they will go with the ebb and flow of the gaming business. They are essentially a hardware company that makes software to sell the hardware.”

For the 12 months ended March, Nintendo posted a 23.2 billion-yen loss, compared with a profit of 7.1 billion yen a year earlier. Sales declined 10 percent to 571.7 billion yen, missing the company’s forecast of 590 billion yen in revenue.

Smartphone Shipments

Global smartphone shipments rose 33 percent annually to 285 million units in the first quarter, researcher Strategy Analytics said April 28.

Nintendo won’t sell its games on smartphones while Iwata is in charge, said Michael Pachter, an analyst at Wedbush Securities Inc. in Los Angeles.

“He drew a line in the sand and said no, we’re not doing that,” Pachter said before the earnings were announced. “The only way that changes if he admits he is wrong, which is a very low probability, or they replace him.”

The Nikkei reported in January that Nintendo would provide free mini-games for smartphones. The system would allow consumers to purchase games online via smartphones, according to the report.

Iwata is taking a 50 percent pay cut from February until June, while other directors will take reductions of as much as 30 percent.

Cheaper Hardware

Nintendo is planning to sell cheaper versions of its products in emerging markets, Iwata said in January without offering details. Nintendo began offering an entry-level 2DS portable machine in October for $129.99. It also sells its Wii mini in the U.S. for $99.99.

Nintendo said April 14 it was cutting prices for five 3DS games, including Mario Kart 7, Animal Crossing: New Leaf and Donkey Kong Country Returns 3D in the U.S. to $29.99 each.

Nintendo completed a 114 billion-yen share buyback Feb. 4 after the death of former Chief Executive Officer Hiroshi Yamauchi, who ran the company for 53 years and held about a 10 percent share. Yamauchi gave his stake to his four children after his death, and they sold some to pay taxes on the stock they inherited, according to the company.

Nintendo plans to start a new health-related business by March 2016 that will include hardware and software. It will be an entertaining “non-game” business using non-wearable devices, Iwata has said, without giving additional specifics.

To contact the reporter on this story: Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Terje Langeland, Aaron Clark

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