Nintendo Records Annual Loss of 43.2 Billion Yen for Fiscal Year

Nintendo released their financial results for the fiscal year 2011, which ended March 31st, 2012, and they recorded a severe ¥43.2 billion loss ($537 million USD at current exchange rates) in net income for the year, their first loss. The main reason for this loss was twofold: decreased sales of the Wii and DS systems, and reduced profits from sales due to price cuts to Wii and 3DS hardware. In addition, the price cut to the 3DS meant that Nintendo is selling that system at a loss.

The strong yen also hindered performance as exchange rates were unfavorable to the Kyoto-based company as foreign sales accounted for 77.1% of all Nintendo products sold.

The good news in the list include strong sales of Super Mario 3D Land and Mario Kart 7 and the upcoming August release of New Super Mario Bros. 2, whose predecessor sold over 28 million units on the Nintendo DS; and the release of Animal Crossing and Brain Age sometime in the fall.

The largest part of Nintendo’s strategy is the release of the Wii U in the fourth quarter of the this year to replace the sagging sales of the current generation Wii.

Analysis: This kind of loss is quite bad for Nintendo, but in reality, they were expected to lose much more when the sales of the 3DS pre-price drop weren’t as hot as everyone expected (though I still contend that the sales were not bad at the time), so they managed to claw back some of the losses.

There are some interesting notes concerning future forecasts. Nintendo actually predicts they’ll continue to lose money up to the quarter ending in September but will return to profitability by the end of the fiscal year, March 2013, with ¥20 billion in net profit. That would seem to indicate that the Wii U will launch during or after September, but Nintendo isn’t expecting the Wii U to generate the sales needed to get back in the black due to launching so late in the fiscal year. Rather, they’re counting on the continued strong showing by the 3DS.

The forecast includes anticipated sales of the Wii U, but unfortunately, it has merged them with the expected sales numbers of the Wii system. Nintendo anticipates that the Wii U and Wii combined will sell over 10 million units. Last year, the Wii alone sold about 9 million units, so it’s safe to assume that Nintendo anticipates at least 5-7 million units of the Wii U to be sold by the end of March 2013. The Wii has a chance to cross the 100 million units sold milestone, which is a staggering sum considering that the previous best-selling Nintendo console was the NES at just near 62 million. Even with this loss, it’s been an epic generation from Nintendo, who looked down and out when the GameCube’s lifespan ended.

The old DS, however, receives no such rosy outlook. It sold a respectable 5 million units last year, but Nintendo expects the system to sell only 2.5 million of all variants as consumer attention continues to switch over to the Nintendo 3DS.

Speaking of the 3DS, Nintendo expects to no longer sell the system at a loss as manufacturing processes improve and anticipates similar sales to last year, 18.5 million compared to 2011 sales of 17.13 million. With excellent titles starting to come out for it, I don’t doubt that it will hit Nintendo’s sales expectations.

Nintendo has complained that foreign exchange rates screw them over on pretty much every financial statement for years, but I think they have a point this time. They lost ¥27.7 billion on exchange rates alone, not enough to drag them up from a net loss even if they had favorable rates but still significant. When the Wii hit stores in 2006, the US dollar was worth about ¥117; and in 2011, the dollar averaged about ¥82. That’s quite a rate drop.

The final piece is that Nintendo dragged their heels into the digital market and are looking to strongly push their new Nintendo Network online platform with the Wii U and 3DS. Only time will tell if this initiative will be any better than the meager online offerings Nintendo has delivered so far.

Mohamed Al Saadoon

About Mohamed Al Saadoon