Nintendo lowers forecast from ¥55B profit to ¥25B loss

Opening explanations by the President

at the press conference regarding full-year financial forecast

and dividend forecast modifications

January 17, 2014

Satoru Iwata, President

We would like to explain the modifications of the full-year financial and dividend forecasts announced today.

We revised our full-year consolidated financial forecasts for the fiscal year ending March 31, 2014 that we announced at the beginning of the fiscal year by estimating new net sales of 590 billion yen against the initially projected net sales of 920 billion yen, new operating loss of 35 billion yen against the initially projected operating profit of 100 billion yen, new ordinary income of five billion yen against the initially projected ordinary income of 90 billion yen, and new net loss of 25 billion yen against the initially projected net income of 55 billion yen. Foreign currency assumptions for the end of the fiscal year have been revised from 90 yen to 100 yen per U.S. dollar and from 120 yen to 140 yen per euro.

Revised consolidated unit sales projections are, as outlined in “Notice of Full-Year Financial Forecast and Dividend Forecast Modifications,” 13.5 million units of the Nintendo 3DS hardware and 66.0 million units of the Nintendo 3DS software, 1.2 million units of the Wii hardware and 26.0 million units of the Wii software, and 2.8 million units of the Wii U hardware and 19.0 million units of the Wii U software. There are no modifications to our initial projections for the Nintendo DS hardware and software.

As for the estimated annual dividend, if the actual consolidated financial results are in line with our modified financial forecasts, there will be no annual dividend per share. However, on the basis of our dividends paid in the last two years, we have set a minimum of 100 yen for the year-end and annual dividend per share for this fiscal year.

As year-end sales constitute an extremely high proportion of the annual sales volume in the video game industry and the annual financial performance of a video game company rests heavily on its performance in the year-end sales season, we put in place various promotional activities in order to promote sales and expand our audience in the year-end sales season of the previous calendar year. However, it is now expected that our sales will fail to meet our previous forecast by a large margin.

Giving a detailed explanation on our sales performance in and leading up to the year-end sales season by platform, Nintendo 3DS continued to show strong sales in the Japanese market. The unit sales for Nintendo 3DS in the previous calendar year amounted to approximately 4.9 million units, falling short of our aim of five million units by a small margin. However, as I explained before, given that every gaming device from the year 2000 onwards apart from Nintendo DS and Nintendo 3DS did not reach sales of four million units even in their peak years, we can say that the sales figure for Nintendo 3DS in the last calendar year was indeed very high. However, outside Japan, while its market share increased as we continued to release compelling titles throughout the year, Nintendo 3DS did not reach our sales targets in the overseas markets, and we were ultimately unable to achieve our goal of providing a massive sales boost to Nintendo 3DS in the year-end sales season. Using the U.S. market as an example, Nintendo 3DS became the top-selling platform in the last calendar year, according to NPD, an independent market research company, with its cumulative sales exceeding 11.5 million units; however, the estimated annual sales of the Nintendo 3DS hardware remain significantly lower than our initial forecast at the beginning of the fiscal year. In Europe, while the individual markets showed different results, France was the only market in which we experienced relatively strong sales, and we failed to attain our initial sales levels by a large margin in other countries.

Wii U sales, on the other hand, showed some progress in the year-end sales season as we released various compelling titles from the summer onwards, launched hardware bundles at affordable price points and also performed a markdown of the hardware in the U.S. and European markets; however, they fell short of our targeted recovery by a large margin. In particular, sales in the U.S. and European markets in which we entered the year-end sales season with a hardware markdown were significantly lower than our original forecasts, with both hardware and software sales experiencing a huge gap from their targets. In addition, we did not assume at the beginning of the fiscal year that we would perform a markdown for the Wii U hardware in the U.S. and European markets. This was also one of the reasons for lower sales and profit estimates.

We therefore modified our unit sales estimates in accordance with our performance in the year-end sales season and after the turn of the year, and the drop in software sales had the largest negative effect on our profit forecasts.

Also, yen appreciation against the U.S. dollar and euro, which on one hand affects dollar-based and euro-based sales positively, also increases costs incurred in foreign currencies when they are converted to Japanese yen. While the yen remained very strong for a sustained period of time, Nintendo made a concerted effort to pay more of its manufacturing costs in U.S. dollars in order to minimize its impact. However, as the era of the exceedingly strong yen concluded, our domestic business, which had been progressing at a relatively strong pace, has seen an increase in manufacturing costs, while our overseas business, which is yet to reach its full potential, has not fully benefited from the weaker yen yet. In terms of our profitability in the current fiscal year, therefore, we were unable to sufficiently take advantage of the weaker yen.

As for advertising expenses, and research and development expense forecasts, we made revisions to increase them by eight billion yen and 15 billion yen respectively from their forecasts made at the beginning of this fiscal year. We expect advertising expenses to increase due to the effect of the expenses incurred in foreign currencies to be converted into Japanese yen by using weaker yen rates. The estimated increase of research and development expenses is based on reflecting our ongoing enhancement of the development structure, and new research and development activities. These increases contributed to lowered estimated profit forecasts.

We expect that we will post ordinary income despite the operating loss situation. This is because we now assume that the yen will be weaker than our original assumptions at the beginning of the fiscal year, and re-evaluation of assets and liabilities denominated in foreign currencies owned by Nintendo Co., Ltd. at the end of the fiscal year as well as foreign exchange gains at the time of cash receipts and conversions of foreign funds into yen, among other factors, are expected to exceed the projected operating loss.

On the other hand, we expect to post a net loss despite expecting ordinary income mainly because we need to reverse deferred tax assets in relation to the losses carried over from the previous fiscal years mainly in the United States, as we can no longer expect our financial performance to recover in the current fiscal year.

We will provide more information on our short-term as well as mid-term prospects at the Corporate Management Policy Briefing to be held on January 30, 2014, which will take place in Tokyo a day after we announce our financial results for the third quarter.

These are all of the explanations about modifications of our full-year financial and dividend forecasts.

Forecasts referred to above are based upon management's assumptions with information available at the time the announcement was made and, therefore, involve known and unknown risks and uncertainties. Please note that such risks and uncertainties may cause actual results to be materially different from the forecasts (earnings forecast, dividend forecast and other forecasts).

Link.

Maybe it's time for Iwata to go... A change in direction will do Nintendo some good, but Iwata has said he will not resign.

Now you know why Iwata needs to step down as Nintendo's CEO. He's pretty much killing the company for the most part!

He's become the George W. Bush of video games.

Nintendo needs someone who actually knows what today's customers want, and how to give them what they want.

Abysmal. Sad because I'm really enjoying my Wii U and am really excited for uclmjng content, but they need to change some philosophies up.

Ouch. Tough times!

Interesting comments from Iwata:

"We cannot continue a business without winning," Iwata said on Friday during a press conference attended by Bloomberg. "We must take a skeptical approach whether we can still simply make game players, offer them in the same way as in the past for 20,000 yen or 30,000 yen, and sell titles for a couple of thousand yen each.

"We are thinking about a new business structure" Iwata added. Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business. It's not as simple as enabling Mario to move on a smartphone."

It'll be interesting to see how they use companion apps with main titles on their consoles, I wouldn't mind being able to use an app that allows you to download full retail Wii U/3DS games and have them downloaded by the time you're home. I'm also glad (from the sounds of it) that they realize they need to re-think their structure. I like Iwata and I'm fairly confident in his ability to shake things up.

Link.

At least he isn't becoming the Obama of video games. Now THAT is a scary thought.

I don't understand what both of you are trying to say ...

They're pretending they know politics and coming off as incredibly stupid

As for Iwata he's given the company a bastardized DS and a bastardized Wii. The only two pieces of hardware he's been in charge of have been complete failures.

He's a stubborn man who doesn't understand how to change with the times and he's going to kill the company.

Sad to hear.

It does not seem the Wii U is likely to make the recovery that the 3DS did.

@Jaysonguy-- I would not call a system that has sold nearly 40 million units in less than 3 years a "complete" failure. ^^ One could perhaps say that the 3DS is a sales failure relative to the DS, but in absolute terms, it is on its way to achieving GBA/PSP levels of sales (and possibly more), making the case of the 3DS being a complete failure a difficult one to make. It is not always wise to hyperbolize ^^.

You're one to talk, considering the 3DS is the top selling console worldwide so far.

The fact you call it a console means you're not ready to have this conversation

http://techcrunch.com/2014/01/17/wii-u-not-selling/

Wait, so you're just spamming this everywhere?

LOL That was a bit harsh Jay but I can't lie I LOL'ed hard

Ugh, that headline is pretty stupid, hunting for clicks.

Looks like Yamauchi's biggest mistake was leaving Iwata in charge. If Nintendo is to get rid of Iwata, they need to make sure the replacement is capable of handling the position.

Let me put it this way; The Nintendo 3DS is described as a portable gaming console. Portable gaming CONSOLE.

@Jaysonguy: i dont think your ready for this conversation , these are projections , that does not mean when mariokart 8 etc come out that the wii u cant sell more, you just cant say whats gonna happen til it does and remember ps3 any how the 3ds will keep the company afloat period when its all said and done, its only been 2 and half years since 3ds came out and 1 yrs since wiiu came out it takes time for the games to come and when they do and when the price is right it will start doing better , its not gonna happen over night , nintendo did what they did for 3ds and thats the same thing their gonna need to do for the wiiu

All of that is either wrong or hopes you have

Neither which helps Nintendo

I don't like agreeing with Jason because it's Jason but I think he's right -- in that -- I don't think Mario Kart 8 is going to do enough to push Wii U sales.

I disagree with Jason about the 3DS, as it's doing well and is likely making Nintendo a decent return.

It's because Nintendo has the worst marketing team of any major developer.

ha jason guy right? dont know who put the sugar in your coffee this morning but w/e

I hate agreeing with Jayson as much as the next guy, but he is right on pretty much everything he said. Iwata needs to go, and they need to reign in Miyamoto. I'm honestly starting to believe he actively hampered the latest Mario game. 3D World is the first "main" Mario game I've ever played that I could possibly describe as being "boring".

iwata has been in charge since the gamecube....DS/wii/3DS/GBA SP have all been successes... hes only had 2 failures...wiiU and the gamecube...both home consoles ironically.

i just dont know who can take his place...yamauchi hand picked this guy.... maybe someone else will kill nintendo even 5x as fast...who knows?

Can shareholders force Iwata out?..no idea how big corporations work in Japan.

I'm not boarding the "Iwata should be fired" train until we're sure that the next presidential candidate will make better decisions for the company (which does not always happen) or until the 3DS starts selling as bad as the Wii U.

I'm definitely curious on what changes Iwata is planning on making in the upcoming months.

He sounds like that he's finally acknowledging the contributions cell phones and tablets are making to how people access entertainment.

You are talking to an idiot troll. Don't bother wasting your time. There is a reason I didn't respond to his useless jibberish.

It's because you're outclassed and can't compete against facts, let's not tell tales ok?

Well, he certainly bastardized paper Mario, saying it didn't need story, partner characters... pretty much everything that made paper mario special. And Paper Mario should be on home consoles anyway, the handhelds have the mario and luigi rpgs.

I was a little bit pissed when I read the Iwata asks for that game.

Also, Miyamoto is one of the biggest reasons why Nintendo is so far behind in online gaming.

Maybe Nintendo should replace Iwata with Jaysonguy so he can run it even further into the ground. Seems like it's the only thing he's interested in.