Nintendo Reports First Losses in 7 Years

What a difference 18 months makes. Back in the spring of 2009, Nintendo (PINK: NTDOY ) was still trouncing the competition in monthly sales of both home console and portable video game hardware. It was preparing for the April release of the third-iteration of its best-selling handheld, the Nintendo DSi, and the strength of the company’s Wii console and expensive, peripheral hardware-based software like Wii Fit had industry analysts calling it recession-proof. Not all was well, though. The house of Super Mario Bros. was already watching Wii sales decrease exponentially in its native Japan. The June 2009 launch of the Wii Motion Plus accessory alongside Wii Sports Resort , a sequel to the pack-in Wii Sports software that made the console a cultural and sales phenomenon between 2006 and 2008, performed well, but also well below expectations. The Wii recovered late last fall thanks to the runaway sales success of New Super Mario Bros Wii , but now Nintendo is in trouble. The Wii has experienced its three worst consecutive sales months in the machine’s history.  Nintendo DS software is seen as a fool’s market by third-party publishers thanks to rampant piracy.  Nintendo DS hardware is witnessing a sharp decline in sales as the public waits for the spring 2011 release of its successor, the Nintendo 3DS. Wii sales in 2010 haven’t declined as much analysts have expected after the company’s dreadful summer. Nintendo sold 4.97 million Wii consoles in the first six months of fiscal 2010, compared to 5.75 million during the same period in 2009. Sales of the Nintendo DS, however, have eroded dramatically. Between March and September 2009, Nintendo sold 11.7 million DS handhelds. In 2010,  it sold barely more than half, moving just 6.69 million DSs over the same period. The console was previously on track to become the best-selling video game player of all time, eclipsing Sony’s (NYSE: SNE ) Playstation 2 that holds the record with more than 145 million units sold. At six years old, it would be fair to say that consumers are turning away from the Nintendo DS in anticipation of a more advanced successor, but age is less of a factor than might be expected. The Playstation 2 celebrated its tenth anniversary on Tuesday, and the console continues to sell internationally for Sony. It’s more likely that Nintendo’s handheld is losing sales to smartphones and other mobile media players from manufacturers like Apple  (NASDAQ: AAPL ) and Motorola (NYSE: MOT ). These declines coupled with the slipping Yen have led Nintendo to report its  first operating loss in seven years. The company posted an income deficit of ¥4.2 billion (around $51.7 million) for the first half of the fiscal year, down from a ¥69.5 billion ($854.5 million) profit during the same period last year. Nintendo is forecasting its lowest profits since the end of fiscal 2003. Nintendo is, appropriately enough, in a very similar position as it was  seven years ago. In March of 2004, Nintendo reported its first operating loss ever since opening as a business concern in the 19th century, and it came six months prior to the release of the Nintendo DS, hardware that industry analysts and retailers thought was too strange to succeed. Nintendo is again preparing to release unproven portable technology into the market. Whether the company can repeat history in a landscape that hosts the iPhone remains to be seen, but Nintendo’s history in the industry is strong enough for investors to feel secure. It’s recommended that shareholders hold on to Nintendo through the end of the fiscal year, and potential buyers are advised to wait for a dip in share price in January to buy in before the launch of Nintendo 3DS in Japan next February. As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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