Nintendo’s Financial Results Show Wii U Worries

nintendo-wii-u-console-bannerNintendo’s first quarter results had some good news and bad news for the Japanese console manufacturer. On the plus side, they turned a net profit for the three months from April to June and scored their highest gross profit compared to sales in the last five years.

The bad news is that those good financial results were on the back of 3DS hardware and software sales. The  3DS managed almost nine times the console sales and eleven times the game sales of the Wii U as Nintendo’s next-gen offering limped through the quarter with only 160,000 consoles sold.

From April to June, Nintendo had a net profit of about ¥8.6 billion which translates to about $88 million USD on ¥85.1 billion. This is Nintendo’s first Q1 profit since the 2010 fiscal year (April – June 2009) and net sales are up from the previous year. They also had their highest gross profit as a percentage of sales last quarter with a gross profit of 44.6% of sales.

Unfortunately for Nintendo, their operating income was a ¥4.9 billion loss. That number includes selling, general and administrative expense which basically encompasses all of the other costs of running the company beyond simply making the games. Nintendo says this includes a bigger marketing campaign to sell the 3DS overseas and R&D work on the Wii U. Still, their first quarter loss for FY 2014 is less than half of 2013’s.

What should really worry Nintendo is that their net profit was due to a favourable Yen exchange rate that gave them a profit following currency conversion which resulted a gain on foreign exchange of nearly ¥17 billion.

And the most troubling numbers are 160,000 and 1,030,000. That’s the respective number of Wii U consoles and games sold during the stretch from April to June. Over that same stretch, the Wii sold 210,000 consoles and 3.67 million games. The 3DS trumped both with 1.4 million units sold which is more 3DS consoles sold than Wii U games sold in Q1 FY 2014.

In comparison, Nintendo sold 390,000 Wii U consoles in the first three months of calendar 2013. The fallout from Christmas will have something to do with that but it still means that Nintendo sold half as many Wii Us from April to June as it did from January to March. Even worse, over half of Wii U consoles sold in Q1 were sold in Japan. Only 38% of Wii Us in Q1 were sold in America while the Wii sold 48% so far. It doesn’t seem like a big difference but it doesn’t bode well given the size of the American market.

I won’t suggest that it’s panic time for Nintendo yet because they still haven’t launched any must-buy games for the Wii U yet. However, if they don’t soon, somewhat promising financial results could turn very ugly very quickly. An accounting measure in currency exchange gains made them profitable this quarter. If the yen starts appreciating against the US dollar (the dollar dipped below ¥80 last year but is closer to ¥100 now), that could wipe out Nintendo’s profit.

So Nintendo is holding on but red alert alarms should be going off at Nintendo HQ. The Wii U is dragging them down. If they don’t fix that, the whole company could go down with it.

Sources: Nintendo Investor Relations, IGN

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About Steve Murray

Steve is the founder and editor of The Lowdown Blog and et geekera. On The Lowdown Blog, he often writes about motorsports, hockey, politics and pop culture. Over on et geekera, Steve writes about geek interests and lifestyle. Steve is on Twitter at @TheSteveMurray.

Posted on August 1, 2013, in Games and tagged , , , . Bookmark the permalink. Leave a comment.

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