Nintendo-Canon Benefit as Weaker Yen Masks Apple Competition
Japan’s weakening currency is boosting the earnings outlook at Nintendo (NTDOY) Co. and Canon Inc. (7751), helping them counter slowing sales of video-game machines and compact cameras as consumers turn to smartphones and tablets.
Nintendo, creator of the Mario and Zelda game franchises, doubled its annual net income forecast yesterday, while cutting the sales outlook for its new Wii U console and 3DS handheld player. Canon, the world’s largest camera-maker, may increase net income 14 percent to 255 billion yen ($2.8 billion yen) this year, even as compact-camera sales fall.
The yen declined to the weakest level against the U.S. dollar in 2½ years, boosting the value of Japanese exporters’ overseas earnings, after the Bank of Japan (8301) last week announced a switch to Federal Reserve-style, open-ended easing. Nintendo (7974), which got about 80 percent of revenue from abroad last fiscal year, had a foreign-exchange gain of 22.2 billion yen in the nine months ended Dec. 31.
“A weaker yen is a tailwind to Japanese manufacturers,” said Tetsuro Ii, president of Commons Asset Management Inc. in Tokyo. “It’s a positive trend after Japanese companies weathered the global economic slowdown and a super-strong yen by cutting costs and restructuring.”
Nintendo, the world’s largest maker of video-game machines, raised its net income forecast to 14 billion yen from 6 billion yen. The forecast compares with the 6.6 billion-yen average of 16 analyst estimates compiled by Bloomberg.
The company is aiming for operating profit of at least 100 billion yen in the year starting April 1, President Satoru Iwata said yesterday. The yen has depreciated more than 5 percent against the dollar in the past month, boosting the repatriated value of Japanese exporters’ overseas earnings and assets.
“We raised our profit forecast because the yen weakened,” Iwata said.
At the same time, the Kyoto-based company said it expects an operating loss of 20 billion yen for the year ending March 31, compared with a previous estimate for a 20 billion-yen profit. Nintendo cut its full-year forecast for Wii U sales to 4 million units from 5.5 million and its outlook for 3DS players to 15 million units from 17.5 million.
Wii U Sales
Nintendo is selling the Wii U, the industry’s first major new console since 2006, at a loss as Iwata counts on software sales to revive earnings after the company’s first annual loss in three decades last fiscal year. Iwata is under pressure to replicate the success of the original Wii after the 3DS failed to meet sales targets as gamers shift to mobile devices from Apple Inc. (AAPL) and Samsung Electronics Co. (005930)
Sales of the Wii U haven’t been as strong as expected after its release last year, Iwata said. Nintendo sold 12.7 million 3DS players and 3.06 million Wii U machines in the nine months ended Dec. 31.
The company cut its full-year sales estimate for Wii U software to 16 million units from 24 million and trimmed its 3DS software sales to 50 million from 70 million.
“These are horrible sets of numbers,” Amir Anvarzadeh, a Singapore-based manager for Asia equity sales at BGC Partners Inc. (BGCP), said in an e-mail.
Nintendo’s U.S.-traded shares fell as much as 8 percent to $12.15 in New York trading, the biggest decline in a year. The stock fell 2.4 percent to close at 9,350 yen in Osaka yesterday before the earnings announcement.
U.S. retail sales of video-game software, hardware and accessories declined 22 percent from a year earlier to $3.21 billion in December, according to NPD Group Inc.
Global smartphone sales will probably rise 28 percent this year to 836 million units, according to IHS Inc. (IHS)’s iSuppli. The researcher expects tablet shipments to reach 340 million by 2016, compared with about 120 million last year.
Canon, the maker of PowerShot cameras, generated about 80 percent of sales outside Japan last year. Operating profit, or sales minus the cost of goods sold and administrative expenses, will probably rise 27 percent this year to 410 billion yen. The weaker yen will bolster the figure by 109 billion yen, while sales will get a 203 billion-yen boost, the company said.
The earnings estimates were “conservative,” Chief Financial Officer Toshizo Tanaka said at a press briefing.
The Tokyo-based company said compact-camera sales will probably drop 7 percent this year to 17 million. Sales of models with interchangeable lens are expected to rise 12 percent to 9.2 million.
Revenue at the consumer-products unit, which makes cameras, lenses and inkjet printers, will probably rise 12 percent to 1.58 trillion yen this year, Canon said. The office-products division, Canon’s biggest by revenue, will probably post a 7.7 percent increase after an 8.4 percent decline last year.
“Canon and Nintendo are beneficiaries of a weaker yen,” said Mitsuo Shimizu, a Tokyo-based analyst at Iwai Cosmo Holdings Inc. (8707) “Nintendo is in a tough situation, as its main business is slumping. In contrast, Canon is boosting its main printer and high-end camera businesses, even as sales of compact digital cameras fall.”
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