Nintendo has revised their financial forecast for the financial year ending March 31, 2014, from a net profit of 55 million yen to a loss of 25 million yen, or $ 240 million. Among many reasons, the company has found that sales of both hardware and software are below expectations.
In brief, these are the revised forecasts:
- Net sales, from 920 billion yen to 590 billion yen
- 100 billion yen operating profit to 35 billion yen operating loss
- Ordinary income of 90 billion yen down to 5 billion yen
- 55 billion yen net profit to 25 billion yen net loss
- Wii U hardware sales of 9 million down to 2.8 million
- 3DS hardware sales of 18 million down to 13.5 million
- Wii U software sales of 38 million down to 19 million
- 3DS software sales of 80 million down to 66 million
- Market capitalization of $ 20 billion
Notably, Nintendo will still set aside at least 100 yen per share as a minimum amount for the year-end annual dividend for the fiscal year. This is based on the dividends they have paid in the last two years, as is Nintendo’s policy.
Nintendo CEO and President Satoru Iwata held a press conference explaining the reason for the forecast, ran down Nintendo’s performance in several areas to explain why they have made these changes.
First, and perhaps shockingly, Iwata explained that the 3DS, the best performing console over the past year, did not meet its sales expectation by a wide margin. It was able to do very well in Japan, and notably also sold very well in France. Outside of these two countries, it performed below expectations, even by a wide margin in some countries.
To put this in perspective, NPD reported cumulative 3DS hardware sales at 11.5 million units. As big as that number is, it is significantly lower than their 18 million forecast from the beginning of the year.
Wii U sales saw an increase in sales at the year-end season, when they depend on holiday sales to raise numbers. Nintendo also did a markdown of price for the hardware in US and Europe. In the end, Wii U hardware and software sales are also below expectations, and Iwata also notes they did not plan for the price drops when they made the initial forecasts. Software, more than hardware, had a detrimental effect to their bottomline.
Now, another factor affecting Nintendo’s finances were the currencies. Yen was unusually strong the year before, and this meant less profit for Nintendo for every product they sell abroad. To exacerbate this, they paid more manufacturing costs in US dollars. However, the year would see the yen weaken considerably. As a result, there was an increase in manufacturing costs in Japan, while overseas, they did not feel the benefit of having a weaker yen.
Lastly, they increased spending on advertising by eight billion yen and research and development (this includes the new building and hiring more employees) by 15 billion yen, respectively.
In the end, Nintendo expects to post ordinary income, now that they have adjusted their forecasts to expect a weaker yen. However, they will post a net loss, since they will be reversing deferred tax assets in relation to losses from previous years in the US.
While many will surely point to the Wii U (and of course, rally around the usual Nintendoomed trope), this is disappointing news for the past year and bodes ill for the 8th generation’s formative years. 3DS, which essentially carried the industry over the year while Wii U underperformed and Sony and MS swallowed huge losses for R&D on their new consoles, did not meet financial expectations.
This means the industry was in a bigger rut over the previous year than we all thought it did. Obviously, it's also a sign that the industry cannot expect their successes to build on itself as it has in previous years. Finally, it's a painful reminder of the remarks of former Nintendo frontrunner Hiroshi Yamauchi himself, that the gaming business is generally unpredictable.
We can only be hopeful that all the console companies (and Valve, too) can rally and get the industry back on track for this financial year, not only for their sake, but for us as gamers.
