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Nintendo Faces Wii U Shortage After Debut in U.S. This Weekend

By Naoko Fujimura
November 16, 2012 5:46 AM EST 9 Comments
Pressure is mounting on President Satoru Iwata to repeat the success of the Wii console after the 3DS handheld player failed to meet sales expectations in overseas markets, prompting the company to cut its profit goal by 70 percent last month.
Photographer: Patrick Fallon/Bloomberg
Pressure is mounting on President Satoru Iwata to repeat the success of the Wii console after the 3DS handheld player failed to meet sales expectations in overseas markets, prompting the company to cut its profit goal by 70 percent last month.

Nintendo Co. (7974)’s new Wii U will likely fly off store shelves during the holiday shopping season, giving the creator of Mario and Zelda a temporary boost as it tries to rebound from its first annual loss.

The Wii U debuts in the U.S. on Nov. 18 starting at $300, and shortages are likely as the company is expected to sell 3.5 million units this year, according to market researcher IHS Screen Digest. The long-term outlook for the home console and its software isn’t so promising as the world’s biggest maker of video-game machines faces surging sales of smartphones and tablets, which players use for free online games.

Pressure is mounting on President Satoru Iwata to repeat the success of the Wii console after the 3DS handheld player failed to meet sales expectations in overseas markets, prompting the company to cut its profit goal by 70 percent last month. Nintendo and rival console makers Microsoft Corp. (MSFT) and Sony Corp. (6758) all face increased competition in the gaming market as consumers turn to smartphones and tablets such as Apple Inc. (AAPL)’s iPad to play free games like “Angry Birds.”

“If the Wii U fails to return Nintendo back to strong profitability, there is likely to be questions asked of the strategic direction of the company and the execution of that strategy,” said Piers Harding-Rolls, London-based head of games at IHS Screen Digest.

Supply Shortage

The Wii U may sell out during the first six months of its release, said Michael Pachter, a Los Angeles-based analyst at Wedbush Securities Inc. Demand after that may be about 10 million units a year, he said.

By comparison, sales of the Wii reached 5.84 million units in the four months after its November 2006 release, and 18.6 million in the 12 months ended March 2008, according to the company.

Iwata, 52, told analysts and investors Oct. 25 the Wii U may be in short supply this year because production only began “this summer,” according to Nintendo’s website.

“It has now become more likely that it is our production capacity, rather than consumer demand, that will place limits on our Wii U prospects for this calendar year,” Iwata said Oct. 25, according to the website.

Yasuhiro Minagawa, a spokesman for Nintendo, declined to give a forecast for initial shipments. The console maker said Oct. 24 it expects to sell 5.5 million units by March 31.

Google, Amazon

“The Wii U won’t be as popular as the Wii,” said Takashi Oka, a Tokyo-based analyst at TIW Inc., who estimates the Kyoto, Japan-based company will sell 16 million Wii Us in the year starting April 1. “Nintendo won’t be able to return to the same level as before.”

The machine goes on sale in Europe and Australia on Nov. 30 and in Japan on Dec. 8.

The Wii U’s GamePad controller lets users wirelessly connect to the console so characters can jump between the device and a TV. Players also can use the tablet-like controller to capture screenshots of a game and share them with friends through the Miiverse social network.

The console also features Nintendo TVii, which can access streaming video services including Amazon.com’s Instant Video, Google Inc.’s YouTube and Netflix Inc.

Mario, Lego

The company is introducing the machine with 23 titles, including “New Super Mario Bros. U” and “Lego City: Undercover,” and will add 29 more by the end of March in the U.S., it said Sept. 26. That compares with the 18 titles released for the 3DS’s debut in the U.S. in March 2011 -- none of them featuring the company’s iconic plumber in red overalls.

After adding high-definition graphics to the Wii U, Nintendo attracted developers including Activision Blizzard Inc. and Electronic Arts Inc. that focused on games for Sony’s PlayStation 3 and Microsoft’s XBox 360 because of the Wii’s limitations. Ubisoft Entertainment’s “ZombiU” game will be exclusive to the Wii U.

Nintendo rose 1.4 percent to 10,550 yen in Osaka trading, compared with a 2.2 percent gain in the Nikkei 225 Stock Average. The company, which is little changed for the year, posted its first annual loss on a stronger yen and sluggish demand for the 3DS that prompted a price cut.

Apple declined 2.1 percent to $525.62 in New York trading, trimming its year-to-date gain to 30 percent.

The 3DS, which can display 3-D images without glasses, has picked up sales momentum in Japan with titles including “New Super Mario Bros. 2” and Capcom Co.’s “Monster Hunter 3 (Tri) G,” Nintendo said. The player “is not strong enough yet” in the U.S. and Europe, Iwata said Oct. 25.

IPhone, IPad

“The company must sell the Wii U as planned, otherwise it may not be able to become profitable,” said Mitsushige Akino, who oversees the equivalent of about $600 million in assets at Ichiyoshi Investment Management Co. in Tokyo. “The company is in a difficult situation as players now opt for the iPhone and iPad to kill time.”

The Wii U will sell at a loss, Senior Managing Director Yoshihiro Mori said Oct. 24.

Net income may total 6 billion yen for the year ending March 31, compared with Nintendo’s previous estimate of 20 billion yen, the company said Oct. 24. The game maker posted a 43.2 billion-yen full-year loss in the preceding 12 months, its first since the company went public in 1962.

Nintendo’s annual operating profit averaged 359 billion yen in the five years ended March 31, according to data compiled by Bloomberg. Last fiscal year, the operating loss was 37.3 billion yen.

Apple, Microsoft

The Wii U’s success may also help Nintendo suppliers, including Renesas Electronics Corp. (6723), which worked with the video-game maker to develop system chips to process graphics and run software programs for the Wii U, according to Nintendo’s website.

More than 500,000 customers worldwide are on a waiting list for the device, GameStop Corp. (GME), a specialty retailer with 6,600 stores in the U.S. and Europe, said yesterday. Shoppers placed orders for 1.2 million Wii U titles worldwide, more than double that of the original Wii launch, GameStop President Tony Bartel said in an earnings conference call.

Still, the console is being introduced in a different market than its predecessor. Cupertino, California-based Apple introduced the iPhone in 2007 and the iPad in 2010, and its App Store has more than 700,000 applications, Apple said last month.

U.S. retail sales of video-game software, hardware and accessories fell 25 percent from a year earlier to $755.5 million in October, NPD Group Inc. said Nov. 8. The drop was led by a 37 percent decline in console sales to $187.3 million, the Port Washington, New York-based company said.

That’s forced Nintendo to sell its devices at a loss at the wholesale level and try to recover profit elsewhere, including through direct sales, Harding-Rolls said.

“This launch is critically important,” Reggie Fils-Aime, president of Nintendo of America Inc., said in a September interview. “Are we an anachronism? No way.”

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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