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Nintendo Issues Earnings Warning on Poor Wii U Sales

Jan. 20, 2014
Nintendo, maker of the Donkey Kong and Super Mario brands, blamed the downgrade on expectations it would now sell just 2.8 million units of the Wii U worldwide in the current fiscal year.

TOKYO - Nintendo shares plunged nearly 19% Monday before recouping most of those losses after the Japanese gaming giant warned it would slip back into the red on poor sales of its Wii U game console.

The warning, released after the Tokyo market closed Friday, highlighted a growing chasm between Nintendo (IW 1000/561) and global rivals Sony and Microsoft, as well as the trio's battle against cheap -- or sometimes free -- downloadable games for smartphones and tablets.

Shareholders unloaded the stock at the opening bell Monday after Kyoto-based Nintendo said it would lose 25 billion yen (US$240 million) in the fiscal year to March, reversing an earlier 55 billion yen net profit forecast.

But the shares recovered from their morning losses to close 6.14% lower at 13,745 yen.

Nintendo, maker of the Donkey Kong and Super Mario brands, blamed the downgrade on expectations it would now sell just 2.8 million units of the Wii U worldwide in the current fiscal year.

That is less than a third of its earlier prediction for 9 million consoles, and deals a blow to high hopes it would match the blockbuster success of the original Wii.

In contrast, Sony's PlayStation 4 and Microsoft's Xbox One have seen huge demand for their new consoles as the firms battle for control of a global sector worth about $44 billion annually.

On Friday, Nintendo said that holiday season demand failed to boost flagging sales, forcing the company to slash forecasts as sales of the console's high-margin software slumped.

For Nintendo, the grim forecast is especially disappointing after it scratched its way back to profitability last year thanks to a sharply weaker yen, which inflates Japanese firms' repatriated profits.

"Investors had been praying for a strong recovery but what's obvious now is that the company is lagging behind," said Hirokazu Kabeya, senior strategist at Daiwa Securities.

"Both the hardware and software businesses were bad. It was as if the company got a 'no' verdict on all aspects.

"We should closely watch how the company will rehabilitate itself from here," he added.

Nintendo has previously blamed weak earnings partly on high development and marketing costs for the Wii U, launched in late 2012, although sales of its 3DS handheld console and related game titles fared better. It cut prices on both consoles to boost sales.

Nintendo President Satoru Iwata apologised to shareholders at a press briefing on Friday, saying that "my duty, more than anything else, is to revive our business momentum".

The company is to hold a briefing about its new strategy on Jan. 30.

Sony PlayStation 4 Saw Record Demand

Nintendo's grim downgrade came as key domestic rival Sony (IW1000/48) saw record demand for its new PlayStation 4 console, which had already sold more than 4.2 million units by the start of the year.

The console was launched on Nov. 15.

Microsoft (IW 500/16) has also seen robust demand for its Xbox One console, which sold more than one million units in the 24 hours after its November release.

The firms are giants in the global videogames industry, but they have faced tough economic conditions in the U.S. and Europe, while also battling a move to smartphone games.

"One smartphone does everything for many people, and so they don't feel the need to have game consoles," Daiwa's Kabeya said.

He added that Nintendo had plenty of cash on hand so its balance sheet was safe for now, but "its finances will become severer and severer if thing carry on like this".

Shinkin Asset Management fund manager Naoki Fujiwara saw little hope for Nintendo after the Wii U failed to live up to expectations.

"Growth is nowhere to be seen," he said.

Copyright Agence France-Presse, 2014

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