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Nintendo is counting on a strong launch for the Wii U next month to help return the company to profitability this fiscal year, but the hardware itself isn't going to contribute anything to that bottom line. Nintendo has revealed that the Wii U will be sold below cost in order to attract more potential customers for what it hopes will be stronger-than-normal software launch sales.

"Rather than determining a price based on [the Wii U's] manufacturing cost, we selected one that consumers would consider to be reasonable," Nintendo President Satoru Iwata said in an investor conference call yesterday. Iwata didn't say how much of a loss the company would take on each system it sells, but he did indicate that the projected write-off from Wii U hardware is a big part of why "we cannot say that we will achieve 'Nintendo-like' profits within this fiscal year." Just yesterday, Nintendo slashed its profit forecast for the year by 70 percent, thanks in part to weaker than expected 3DS and Wii sales in the first half of the year.

Selling hardware at a loss is relatively common in the game industry: both the Xbox 360 and PlayStation 3 lost money when they were first put on the market, despite starting prices of $400 and $500, respectively. But Nintendo systems have recently been the exception to this rule: the low-powered Wii made a profit at its launch price of $250, and the 3DS was also profitable when it launched last year.

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Back in April, Nintendo said it was counting on increased 3DS sales and profitability to help turn around the first full-year loss in the company's history. Today, Nintendo admitted that demand for its latest portable and the aging Wii continue to lag behind expectations, dragging down profits.

It's not like the 3DS is a Virtual Boy-level failure—the system did sell over 5 million units worldwide in the six months through September, including 2.1 million sales for the well-designed 3DS XL. First-party titles like New Super Mario Bros. 2, Super Mario 3D Land, and Mario Kart 7 continue to sell in the millions as well.

But Nintendo still lowered 3DS sales expectations for the full fiscal year, which ends in March, from 18.5 million to 17.5 million, reflecting increasingly tough competition from mobile and tablet games. The outdated Wii also continued its long sales decline, selling only 1.3 million units in the last six months due to what Nintendo admitted were "few new title releases." The company cut full-year sales expectations for the Wii drastically, from an expected 10.5 million in April to 5 million today.

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Back in April, Nintendo said it was counting on increased 3DS sales and profitability to help turn around the first full-year loss in the company's history. Today, Nintendo admitted that demand for its latest portable and the aging Wii continue to lag behind expectations, dragging down profits.

It's not like the 3DS is a Virtual Boy-level failure—the system did sell over 5 million units worldwide in the six months through September, including 2.1 million sales for the well-designed 3DS XL. First-party titles like New Super Mario Bros. 2, Super Mario 3D Land, and Mario Kart 7 continue to sell in the millions as well.

But Nintendo still lowered 3DS sales expectations for the full fiscal year, which ends in March, from 18.5 million to 17.5 million, reflecting increasingly tough competition from mobile and tablet games. The outdated Wii also continued its long sales decline, selling only 1.3 million units in the last six months due to what Nintendo admitted were "few new title releases." The company cut full-year sales expectations for the Wii drastically, from an expected 10.5 million in April to 5 million today.

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The transition from one hardware generation to the next is never an easy time for a console maker's balance sheet, as sales of the old system start to taper off and investment in a new system has yet to pay off. Still, there are signs that Nintendo is handling the transition worse than could be expected.

The company reported financial results (PDF) for the quarter ending June 30 today that showed revenues plunging nearly 10 percent from last year, to ¥84.8 billion (about $1.08 billion). And while the net loss of ¥17.2 billion ($220 million) for the quarter was actually an improvement from last year's performance, it's still a worrisome sign for a company that had been consistently profitable for decades until just last year.

The main culprit continues to be drastic declines in sales of its most-popular console. Nintendo sold only 710,000 Wiis in the three-month period from April to June, less than half the 1.6 million moved during the same time last year, and well down from the record-setting pace of a few years ago. Nintendo is counting on a strong launch for the Wii U to help turn things around: the company expects its two home consoles to combine to sell over 10.5 million units for the fiscal year, which ends next March.

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The transition from one hardware generation to the next is never an easy time for a console maker's balance sheet, as sales of the old system start to taper off and investment in a new system has yet to pay off. Still, there are signs that Nintendo is handling the transition worse than could be expected.

The company reported financial results (PDF) for the quarter ending June 30 today that showed revenues plunging nearly 10 percent from last year, to ¥84.8 billion (about $1.08 billion). And while the net loss of ¥17.2 billion ($220 million) for the quarter was actually an improvement from last year's performance, it's still a worrisome sign for a company that had been consistently profitable for decades until just last year.

The main culprit continues to be drastic declines in sales of its most-popular console. Nintendo sold only 710,000 Wiis in the three-month period from April to June, less than half the 1.6 million moved during the same time last year, and well down from the record-setting pace of a few years ago. Nintendo is counting on a strong launch for the Wii U to help turn things around: the company expects its two home consoles to combine to sell over 10.5 million units for the fiscal year, which ends next March.

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