Nintendo's Quarterly Profit Plunges 61%

Historian, and Director of the W. E. B. Du Bois Institute for African and African American Research at Harvard University, Henry Louis Gates Jr., Cambridge Police Sgt. James Crowley and President Barack Obama
AP Photo/Koji Sasahara
Nintendo's quarterly profit fell 61 percent as sales of the once unstoppable Wii console tumbled for the first time since its launch three years ago.

The Kyoto-based company said Thursday its April-June net profit retreated to 42.3 billion yen ($445.2 million) from 107.3 billion yen a year earlier.

Sales declined 40 percent to 253.5 billion yen, while operating profit - a measure of its core business - fell 66 percent to 40.4 billion yen.

The company blamed its results on a dearth of hit software titles, without which demand for the Wii and handheld DS device floundered. Last year, new game titles like "Mario Kart Wii" and "Wii Fit" helped drive strong hardware sales, it said.

Nintendo sold 2.23 million Wii units during the three months, compared with 5.17 million last year. Global sales of Wii software totaled 31.07 million units from 40.41 million the previous year.

Customers bought 5.97 million DS devices, down 14 percent on year.

"I knew the results were going to be bad, but this was even worse than my expectations," said Satoru Kikuchi, an analyst at Deutsche Securities in Japan.

Nintendo's sales to the Americas fell 38 percent, while those to Europe plunged by more than half - troubling signs for a company that derives 87 percent of its revenue from overseas markets.

The company was also hurt by a stronger-than-expected yen, which reduces the value of overseas profits when repatriated to Japan.

It has estimated an exchange rate of 100 yen to the dollar. Instead, the dollar averaged 97.32 yen during the quarter.

In June, U.S. sales of game hardware, software and accessories plunged 31 percent from the same month last year to $1.17 billion, according to market researcher NPD Group. It was the largest year-over-year decline the industry has seen in nearly nine years.

But President Satoru Iwata has described Nintendo as "recession-proof," and the company did not cite the global economic downturn as a major factor in its performance.

Kikuchi tends to agree since Nintendo did well during the Christmas shopping season despite the recession.

It's not the economy that is hurting Nintendo, Kikuchi notes. It's boredom.

"These casual gamers and light users, they're getting bored," he said. "Nintendo needs to keep their attention with new software, but that hasn't happened."

When Nintendo released the Wii in 2006, the company sought to expand the gaming demographic to nontraditional players like women and seniors. The console, which features a wireless motion-detecting controller, was an immediate hit and continues to outsell Sony's PlayStation 3 and Microsoft's Xbox 360.

Nintendo is banking on the latter half of the year to meet its annual targets. It has high hopes for the recently launched "Wii Sports Resort," which so far has gotten good reviews. It also plans to release "New Super Mario Bros. Wii" and "Wii Fit Plus" later this year.

"Nintendo continues to pursue "gaming population expansion" based on the idea of putting smiles on many people's faces by offering brand new entertainment that anyone can enjoy, regardless of age, gender or gaming experience," it said.

It left unchanged its forecasts for the full year through March 2010. It continues to expect net profit of 300 billion yen on 1.8 trillion yen in sales.

In trading Thursday, shares of Nintendo jumped 2.6 percent to 26,820 yen, compared with a 0.5 percent gain in the benchmark Nikkei 225 index.

Nintendo reports earnings based on Japanese accounting standards.