Why Nintendo Is Losing The Console War

Nintendo (NASDAQOTH: NTDOY  )  is one of the most influential gaming companies in the world. Its Super Mario Bros. series became one of the best-selling video games of all time, with more than 40 million copies sold, and is regarded as the best game created ever by several magazines, reviewers, and TV channels, including G4, which praised its revolutionary gameplay.

However, the Japanese gaming company has been struggling with weak sales for the past five years. This year, sales of its Wii U flagship console were so weak -- 3.45 million Wii U consoles sold versus a 4 million target -- that Nintendo canceled its press conference at the biggest video gaming show of the year, the E3 conference. This week, negative momentum strengthened after the company was passed over for inclusion in the Nikkei 225. Why is Nintendo losing the console war against Sony (NYSE: SNE  ) and Microsoft (NASDAQ: MSFT  ) ?

NTDOY Chart

Source: YCharts

The console war 
There's an ongoing global war for supremacy in the console-gaming industry, featuring Microsoft's Xbox, Sony's PlayStation and Nintendo's Wii as main players. Apart from marketing campaigns, each has invested significant capital to build strong relations with developers and created active communities of gamers.

No mobile exposure
However, only Nintendo is completely exposed to the gaming industry. Microsoft is active in every important tech market, from smartphones to cloud solutions. Sony is also well-diversified, with exposure to the electronics business, the entertainment arena, and smartphone manufacturing.

This is not good news for Nintendo, because consoles are under serious attack from the smartphone industry. Gaming is becoming increasingly mobile. It represents 39% of time spent on smartphones and 67% of time spent on tablets. But unlike Sony, which developed the amazing Xperia Z flagship smartphone, or Microsoft, which recently agreed to buy Nokia's mobile business, Nintendo has no exposure to mobile.

A desperate move
On the other hand, competition in the console world became so fierce that, in an aggressive and risky move, Nintendo decided to release its Wii U latest console a full year before its competitors. However, the company did not manage to sell the 4 million units it had expected, probably because the Wii U lacks many online features, and because its graphics are only slightly better than those of the Xbox 360 and the Sony PlayStation 3, which belong to a previous generation.  

Moreover, Sony will release its PlayStation 4 on Nov. 15 in the U.S. at a very competitive price. Unlike Nintendo's Wii U, the PS4 will offer game DVR. It will be equipped with an amazing Advanced Micro Devices (AMD) Radeon Graphics Core engine with 1152 shaders, while Nintendo uses an AMD engine with 320 shaders. 

To make matters worse, Microsoft will release its Xbox One on November 22. This device will integrate live TV, web services like Skype, movies and games, using Kinect's voice recognition capabilities, but each device will be sold for roughly $100 more than Sony's PS4. Both the Xbox One and the PS4 will be equipped with a strong 8 cores processor and 8 gigabytes of memory. These specifications are far more superior than the Wii U's 3 core processor and its 2 gigabytes memory.

Furthermore, both Microsoft and Sony have included extensive support for external storage, cloud storage, remote download and "play as you download" features, which are very important for cloud gaming. Nintendo hasn't. 

My Foolish take
There's a huge tech gap between Nintendo and its competitors. It seems the company tried to catch up and buy some time by releasing its flagship console one year in advance. However, because the Wii U did not offer a major improvement in graphics, connectivity or processing speed, sales have been disappointing.

Now time's up. Sony and Microsoft are releasing their flagship consoles next month. Furthermore, Nintendo has no mobile exposure, which is a great disadvantage considering the increasing amount of time gamers spend on smartphones. Nintendo will have to rely on its last weapon to survive the fierce console war: its rich intellectual property. Will this be enough to save Nintendo? Only time will tell.

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Read/Post Comments (4) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 15, 2013, at 11:03 AM, element187 wrote:

    This has to be the worst researched article I have found on the net regarding Nintendo.

    First off, they didn't cancel any conference, they had a direct to their install base... the media is just angry because Nintendo cut them out of the loop on announcements.

    Second off, there is absolutely NOTHING powerful about the PS4/xBone. Both have EXTREMELY weak CPU's built for tablets. 8 cores running at 1.6ghz is paltry.... you don't get very much milage out of 8 cores if ALL 8 cores are clocked to 1.6ghz.... with a mediocre GPU, they aren't even on par with a low-end gaming PC... This idea that the PS4 and xBone is so far away better technology is a joke... the xBone is barely 3x as powerful as the Wii U... but some how that is considered vastly superior? come on, this is a poorly researched article.... xBone is maybe if its lucky pushing 1 terafllop of power, while the Wii U is in the neighborhood of 350 gigaflops, not exactly a large gulf in processing power.

    You would think "journalist" would research their work a bit better than this.

  • Report this Comment On October 16, 2013, at 5:33 AM, itsme992233 wrote:

    Pokémon X and Pokémon Y Sell More Than 4 Million Units Worldwide in First

    Two Days

    First Pokémon RPG for Nintendo 3DS Launches Simultaneously Around the World

    Business Wire

    REDMOND, Wash. -- October 15, 2013

    On Saturday, Oct. 12, Pokémon X and Pokémon Y for Nintendo 3DS became the

    first set of games in franchise history to launch simultaneously worldwide.

    Nintendo reported today that the games combined to sell more than 4 million

    units across Japan, Europe* and The Americas on Saturday, Oct. 12, and Sunday,

    Oct. 13.

    “The early response to Pokémon X and Pokémon Y not only reaffirms the ongoing

    passion of Pokémon fans, but also indicates that an entirely new generation of

    gamers is eager to experience the franchise for itself,” said Nintendo

    President Satoru Iwata.

  • Report this Comment On October 16, 2013, at 5:38 AM, itsme992233 wrote:

    but yeah my family changes the quote anyway and i never will get out oof this hell here

  • Report this Comment On October 16, 2013, at 5:59 AM, itsme992233 wrote:

    no but seriously motley fool is right... they were always right, i should have sold when fool said so..

    now i have my money on nintendo and i will lose it all...

    Nintendo stinks, its the worst investment ever.

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