profit


Since Nintendo announced yesterday that it is cutting back Wii U sales projections, some consumers began to wonder if the system, which currently starts at $300, would see a price cut sooner rather than later. Nintendo President Satoru Iwata threw cold water on those hopes today, telling investors that such a price cut would not be forthcoming.

"With Wii U, we have taken a rather resolute stance in pricing it below its manufacturing cost, so we are not planning to perform a markdown," Iwata said in translated remarks. "I would like to make this point absolutely clear. We are putting our lessons from Nintendo 3DS to good use, as I have already publicly stated. However, given that it has now become clear that we have not yet fully communicated the value of our product, we will try to do so before the software lineup is enhanced and at the same time work to enrich the software lineup which could make consumers understand the appeal of Wii U." (Links added for context.)

Translated from corporate speak, the message is clear: "The Wii U isn't too expensive, we just haven't done a good job convincing enough people why it's worth the price."

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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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