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Nintendo Quarterly Profit Falls 15% on Wii, DS Demand

Nintendo Second-Quarter Profit Declines 15%
Children try out Nintendo Co.'s Wii video game console at a showroom in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

Nintendo Co., the world’s largest maker of video-game players, posted a 15 percent drop in second-quarter profit after demand for the Wii console and DS handheld players slumped.

Net income fell to 23.2 billion yen ($285 million) in the three months ended September, matching the average of three analyst estimates compiled by Bloomberg. The figures were calculated by subtracting first-quarter numbers from the first-half results released by Kyoto, Japan-based Nintendo today.

Nintendo is forecasting its smallest annual profit in six years as demand for the Wii slumps and consumers hold off on buying DS players before the release of a 3-D model. President Satoru Iwata plans to introduce the 3DS handheld this fiscal year and a heart-rate-tracking “Vitality Sensor” accessory for the Wii to revive earnings growth.

“It’s been harder than people realized for Nintendo to make the transition between the DS and the 3DS,” said Jay Defibaugh, a games analyst at MF Global FXA Securities Ltd. in Tokyo. The 3DS is cannibalizing sales of its predecessor, Defibaugh said.

Nintendo declined 0.7 percent to 21,290 yen at the trading close in Osaka, Japan. The shares have lost 3.4 percent this year.

3DS Delayed

Nintendo said in June that the 3DS handheld, whose debut was pushed back until after the year-end holiday season, 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 3DS will go on sale in Japan on Feb. 26 for 25,000 yen and the following month in the U.S. and Europe, where the price hasn’t been set, the Kyoto-based company said last month.

“I don’t think the announcement of the 3DS had much effect on second-quarter earnings,” Nintendo’s senior managing director Yoshihiro Mori said in a briefing in Osaka today. “We decided not to release the 3DS this year because we didn’t have enough.”

Sales of DS players dropped 43 percent to 6.7 million units in the six months ended Sept. 30, while the number of game titles sold fell 23 percent to 54.8 million. Nintendo today kept its outlook for full-year sales of the handheld to decline 13 percent to 23.5 million units.

Wii Players

The company sold 4.97 million Wii consoles in the first half, 14 percent fewer than a year earlier, while software sales dropped 14 percent to 65.2 million copies. Sales of the Wii will decline for the second year, sliding 15 percent to 17.5 million units in the period to March 2011, Nintendo said.

Second-quarter operating profit, or sales minus the cost of goods sold and administrative expenses, fell 52 percent to 30.9 billion yen in the quarter, as revenue declined 41 percent to 174.5 billion yen, according to the calculations. Sales missed the 176.8 billion yen estimated by analysts.

Ken Toyoda, a company spokesman, declined to comment on the calculations.

Nintendo faces more competition now than when it began sales of the Wii in 2006. At that time, it 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 has updated its software to allow PlayStation 3 machines to run games in 3-D, and in June began selling game titles as well as Bravia televisions capable of showing the format. PS3 users have to wear special glasses to play 3-D games, Sony said.

Motion-Sensing Devices

Tokyo-based Sony, whose PlayStation 2 player dominated the previous generation of game consoles, introduced its motion-sensing controller, Move, for the PS3 last month to appeal to casual users and narrow Nintendo’s lead.

Microsoft plans to introduce its Kinect motion-sensing controller with a free game in November for $150, the company said in July. The Redmond, Washington-based company plans to include the product in a $300 package featuring the new, slimmer Xbox 360 console and the Kinect Adventures game, it said then.

“When you release something and there isn’t anything else, people will rush to buy it, but that’s not where we are now,” said Mitsushige Akino, who oversees about $450 million in assets at Ichiyoshi Investment Management Co. in Tokyo. Whether consumers will buy Nintendo’s new player just because it’s in 3-D remains “an open question,” he said.

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