When it is launched, Nintendo (NTDOY) is apparently expecting Wii U to lose money. Nintendo is having difficulty keeping the cost for its new console down for two reasons: a higher yen and rising production costs. This follows the move it made when it released the 3DS. Late last-year, Nintendo managed to start making a profit after it reduced the price of the 3DS. This strategy is a necessary step for building a large user-base. Nintendo is one of many console game makers facing stiff competition from smartphones. Consumers prefer to pay high monthly fees for mobile phones whilst playing games for free or around $1.99 each.
Nintendo’s revenue-losing move will ultimately bring an advantage over the competition. Microsoft (MSFT) has yet to release a refreshed XBOX, and Sony’s (SNE) Playstation is not rumored to be released until 2015.
Nintendo sold over 22 million 3DS units as of September 2012. To-date, 97.2 million units of Wii were sold. In the last 6 months, sales declined 6.8%.
Nintendo’s existing game console is now selling for $20 less. It is now $129.99, and will come bundled with Wii Sports Resort and Wii Sports. At this price range, Nintendo not only looks to have poised for growth with its new console, but the company can compete effectively with Sony and Microsoft.
Nintendo lost $366 million between April and September 2012, which is an improvement over the previous year loss of $718 million. Sales for DS declined by 62.4%, while Wii sales declined by 60.6% in the quarter. Conversely, 3DS sales increased 64.8%.
During its quarterly results, Nintendo reduced its earnings outlook for fiscal 2013. The company now expects to earn $75 million, down from $250 million.
When Wii U is launched in November, Nintendo expects sales of 5.5 million units in the second half of its fiscal year. Its success will rely largely on impressing consumers that there is a novel way to play games. On the flip side, the new way to play games may be too different, which would undermine Nintendo’s outlook. Nintendo also needs to convince game players that it is more worthwhile to pay more upfront for games, compared to games on smart phones.
Business Section: Investing Ideas
Companies mentioned in this article include:
2. Sony Corporation (SNE, Earnings, Analysts, Financials): Designs, develops, manufactures, and sells electronic equipment, instruments, and devices for consumer, professional, and industrial markets worldwide.
Companies poised to benefit from the Wii U launch are:
4. GameStop Corp. (GME, Earnings, Analysts, Financials): Operates as a retailer of video game products and personal computer (PC) entertainment software. GameStop said it expects Wii U to be a revenue driver.
5. Activision Blizzard, Inc. (ATVI, Earnings, Analysts, Financials): Publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. The company is releasing a number of titles including Call of Duty, 007 Legends, and Transformers.
6. THQ Inc. (THQI, Earnings, Analysts, Financials): A worldwide developer and publisher of interactive entertainment software for all game systems, including home video game consoles. The company is releasing Jeopardy, Darksiders II, and Wheel of Fortune for the Wii U.
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