Wii price cut required to offset slowing sales - Analyst

This morning, Nintendo reported an annual profit of ¥229 billion ($2.44 billion)--a number many game companies would envy. However, the figure marked the first decline in profits in six years for the Kyoto, Japan-based game giant. Net income for the 12 months ended March 31 fell 18.1 percent to ¥229 billion ($2.44 billion), with revenues slipping 22 percent to ¥1.43 trillion ($15.2 billion).

One major factor for the decline was the flagging momentum of the Wii, which has now sold nearly 71 million units worldwide. Alarmingly, Nintendo predicted sales will fall another 12.5 percent, thanks to a further slowing of Wii sales. Wedbush analyst Michael Pachter believes that the still top-selling console will see increased competition later in the year--competition he believes will force Nintendo to further discount the $199.99 console.

"In the future, lower pricing on the PS3 and Xbox 360 will provide consumers with a more difficult choice when considering a new console," wrote Pachter in a note sent out this morning. "The Wii enjoyed a $350 price advantage over the PS3 at launch and a $150 advantage until September. Now, the gap has narrowed to $100, with the feature-laden PS3 a tempting purchase for prospective console households. The holiday Wii sales boost was primarily attributable to a $50 gift card promotion offered by Wal-Mart; while we expect similar promotions at holiday next year, we expect the other consoles to be lower priced by then, further eroding the Wii’s competitive price advantage."

Pachter continued, "Beginning this week, Nintendo will include Wii Sports Resort along with Wii MotionPlus (a $50 value) as part of the Wii bundle in the US, so we expect demand to increase through the middle part of the year. However, we believe Nintendo will have to cut the price later this year in order to keep demand steady. Should the Wii price point remain at $199, we think that the December quarter poses a difficult comparison, and we expect the company to have difficulty meeting its overall sales goal for the fiscal year."