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Nintendo bleeds profits, banks on strong holiday

October 27, 2011 |  2:12 pm

Nintendo Co., whose Wii and DS consoles fueled the video game industry's almost meteoric growth between 2006 and 2008, is rapidly falling back to earth.

The Japanese game company on Thursday posted a $925.6-million loss during the first six months of its fiscal year ended Sept. 30. That's up dramatically from last year, when Nintendo lost $26.5 million.

Sales were also down as demand for its games and consoles have cooled worldwide, leading to a 41% drop in revenue for the period. Nintendo had sales of $2.8 billion in the first half of its fiscal year compared with $4.8 billion the year before.

The company's newest product, the handheld 3DS console, has struggled to gain traction among consumers since its launch in March, leading Nintendo to drastically cut its price in August from $249.99 to $169.99.

As a result of the price cut and slowing sales of its games, Nintendo lowered its forecast for its fiscal year ending March 31, 2012. Instead of a $263-million gain the company had expected for the year, Nintendo now expects a $263-million loss. Revenue, meanwhile, is projected to hit $10.4 billion, down 12% from an earlier forecast of $11.8 billion that the company issued in July.

But the game's not completely over for Nintendo, analysts cautioned.

"There's no question that the Wii and the DS are at the end of their life cycles," said J.T. Taylor, an analyst with Arcadia Investment Corp. in Portland, Ore. "But there will be a flourish this holiday when Nintendo comes out with promotions and gift bundles. After that, Nintendo's long-term outlook depends on how successful their next console will be."

Even if Nintendo's next generation game console, dubbed Wii U, succeeds in bouncing back the company's market share, many question whether dedicated game consoles can compete with a plethora of connected devices that can funnel all sorts of entertainment options to consumers, from games and movies to television shows and music.

This is especially true of people who play games on a casual basis, the kind of audience on which Nintendo has traditionally thrived.

"Most people interested in playing games casually seem happy to play on their phones for free or close to free," Taylor said.

Still, Nintendo's ability to survive over the years has boiled down to the popularity of its game franchises, including Super Mario, Zelda, Pokemon and Metroid, all of which can only be played on Nintendo devices.

As a result, analysts believe that Nintendo has a solid future in the games business, just not one that will be as large as it once was.

"There is room for them in the market," said Michael Pachter, an analyst with Wedbush Securities, who estimated that Nintendo's business could shrink between 30% and 50%. "But the blue ocean just became very red."


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-- Alex Pham

Photo: Two Nintendo characters, Luigi and Toad. Credit: somegeekintn via Flickr