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Nintendo has forcast single digit growth ahead as Sony and Microsoft attempt to take share away from the Japanese gaming giant who taught both Companies a lesson when they rolled out the low cost Nintendo Wii. And if things do get bad Nintendo will suffer far more than Sony or Microsoft say Analysts.
For the Japanese financial year through to March 2008, Nintendo reported a whopping 52.6% jump in operating earnings, as its Wii and DS portable gaming machines continued to rack up brisk sales.
Last year, according to BusinessWeek Nintendo’s operating income more than doubled to $4.7 billion thanks to a whopping 73% jump in sales to $16.2 billion. And its profit margins edged up to 29%, from an already impressive 23% the previous year.
But not all is looking bright at Nintendo. The company’s forecasts for this year are far less impressive, with single-digit gains expected for both revenues and operating profits in the current fiscal year.
BusinessWeek goes on to say that this this reflects a simple fact: Fewer consumers will be investing in video games if the economy turns nasty. And of the big three video game console makers, Nintendo is the one that stands to lose the most if a recession hits. That’s because it has wooed ordinary consumers who might not normally buy a video gaming machine but were drawn in by the DS’s easy-to-use touch screen and the Wii’s motion-sensing remote controller, which can be swung like a baseball bat or pointed at the screen and shot like a gun.
During the good times, those consumers helped Nintendo put some distance between itself and Microsoft’s Xbox 360 and Sony’s PlayStation 3. But the diehards who make up most of Microsoft’s and Sony’s buyers are likely to continue adding to their gaming libraries even if the economy stalls, and that makes Nintendo’s rivals more resilient to a slowdown.
Some analysts had seen it coming. Before today’s earnings announcement, KBC Securities’ analyst Hiroshi Kamide had a “hold” recommendation on Nintendo’s shares. His “cautious outlook”, he said, stems from his view that “a U.S.-led recession will be negative on the casual gaming market.” Since January, the company’s shares have fallen 12%, along with the benchmark Nikkei 225 stock average, but in the past 12-month period its stock price is still up 60%.
Another concern: Slowing sales of the portable DS in Japan. The DS went on sale in 2004 and it’s starting to reach the peak of its life cycle.
The company’s saving grace will be software sales, which are still on the rise. Though only a fraction of the 342 new game titles for the DS and 184 for the Wii came out of Nintendo’s own studios last year, it earns from royalties from every game sold. How many was that? 185 million game packs for the DS and 119 for the Wii. Just two weeks ago, Goldman Sachs revised upward its software unit-sales projections for the next two years.
Many analysts think Nintendo has been ramping up Wii to shorten the wait for the machines overseas, where retailers are still selling out of the Wii as fast as they can restock their shelves. That should offset some of the recent losses from the yen’s appreciation in value against the dollar and euro. (As the yen goes up, the income Nintendo earns overseas shrinks when those funds are converted to yen.) And if the stellar debut of the new physical fitness game, Wii Fit, in Japan can be repeated in markets like Australia and the U.S Nintendo shouldn’t have too much to worry about.
For more of this story see BusinessWeek
