Nintendo Falls After Profit Forecast Misses Estimates

Nintendo Falls After Net Forecast Misses Estimates
A man looks at an advertisement for a game software title for Nintendo Co.'s 3DS handheld game consoles outside an electronics store in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Nintendo Co., the world’s largest maker of video-game machines, declined the most in seven months in Osaka trading after forecasting profit that lagged behind analyst estimates.

Nintendo tumbled 5.6 percent, the most since Sept. 28, to 10,900 yen on the Osaka Securities Exchange. Net income may total 20 billion yen ($246 million) for the year ending March 31, Nintendo said yesterday. 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.

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. Apple Inc., gaining in clout in the games business with its iPhone and iPad, reported a 94 percent jump in quarterly profit this week while Nintendo is recovering from its first annual loss since it was listed in 1962.

“There’s a risk Nintendo’s earnings may worsen this fiscal year,” Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo, said yesterday by phone. “The Wii U is the key, and it’s hard to judge with limited information on the machine available.”

Nintendo expects to sell 10.5 million units of the Wii and Wii U this fiscal year, the Kyoto, Japan-based company said in a statement. The new console may account for 7 million of the total, Yasuda said. Nintendo plans to sell 18.5 million units of the 3DS this fiscal year, it said.

Digital Downloads

The company will begin digital distribution of software from August, starting with “New Super Mario Bros. 2,” President Satoru Iwata said today at a briefing in Tokyo. Customers can go to Nintendo’s eShop to download the software or visit retailers to pay to get the software exchange code, he said.

“We can maintain a win-win relationship with retailers,” Iwata said. The stores can reduce a risk of holding excess inventory and avoid opportunity loss when there’s a surge in demand, he said. Retailers can set prices, he said.

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 Nintendo went public, Senior Managing Director Yoshihiro Mori told reporters in Osaka yesterday.

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

Operating Profit

A strengthening of the yen against foreign currencies cuts the value of Nintendo’s overseas earnings when repatriated. The company gets about 39 percent of sales from the Americas and 34 percent from Europe, according to Nintendo.

Retail sales of packaged video games have fallen sharply for about two years as consumers download games to play on smartphones and social networks such as Facebook Inc., according to NPD, a research company in Port Washington, New York.

Nintendo’s 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.

Wii U

The company plans to introduce the 3DS in South Korea this week and in other Asian markets this fiscal year, Iwata said yesterday. It plans to start selling the Wii U in time for this year’s holiday shopping season.

The Wii U’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.

“The Wii U isn’t just a revamp,” Iwata said. “We can only explain the innovative part of the machine when we unveil it” in June, he said.

The company will also offer “several killer software” features, Iwata said. Popular titles are needed to drive sales, a lesson the company learned when it was compelled to cut 3DS prices to revive demand, he said.

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