Wii U Sales Are Bad, but Is Nintendo Really Doomed?

Nintendo (NASDAQOTH: NTDOY  ) has had a rough time with the release of its most recent console, the Wii U. Many declared it dead on arrival based on hardware specs and a "gimmicky" tablet-like controller. A year later, some might argue that these naysayers were correct as the console sees dwindling third-party developer support. According to the company's most recent earnings report, the console moved only 460,000 units between April and September.

Don't write off Nintendo yet. It's important to step back and realize that Nintendo has been here before. While it's entirely possible that the Wii U will continue producing lackluster sales for the rest of its product life, Nintendo has recovered from poor-selling products in the past.

A smooth recovery from the 3DS launch
Nintendo released the Nintendo 3DS handheld system in March 2011 (February in Japan). It looked like it was going to have a spectacular launch, with more than twice the number of preorders than the Wii had in 2006. The initial response was strong, with 440,000 units sold in U.S. in the first week. Unfortunately, that momentum didn't last.

A lack of must-have titles at launch, short battery life, and a too-high price point quickly took their toll. Despite its strong start, the 3DS missed the company's target of 4 million units sold worldwide by the end of March. This caused some to declare the handheld system a flop, especially with the release of Sony's (NYSE: SNE  ) PlayStation Vita looming. Nintendo significantly cut the handheld's price within six months of release and give away 20 downloadable games to customers in an effort to stimulate sales.

Though the move seemed desperate, it worked. Jumping forward to the present day, the 3DS is the best-selling piece of gaming hardware. Sales jumped 260% in the weeks following the price cut and have remained strong since. As of September 2013, the 3DS and its variants have sold 34,980,000 units ... that's 10 million more units than Microsoft's (NASDAQ: MSFT  ) original Xbox sold in its lifetime and nearly half of the life-to-date sales of Xbox 360 models. So much for dead on arrival.

The Wii U isn't the 3DS
It would be misleading to say that the Wii U is destined to succeed because the 3DS recovered from a rocky start. The 3DS is simply an example of why the Wii U isn't necessarily destined to fail. Though there are a number of differences between handhelds and consoles, there are some parallels as well.

While Wii U sales have been dismal, there has been a significant sales increase since Nintendo enacted a price cut. Sales increased by nearly 200% in the most recent quarter (and 1,500% in Japan), though the company still posted a loss on the hardware. This will likely turn around over time as hardware prices gradually go down, and isn't that uncommon for the industry. (By comparison, Microsoft took a hardware loss on the original Xbox for its entire life and for several years on the Xbox 360 as well, and the Xbox segment of the company is still down $5.5 billion over its lifetime.)

Another parallel can be found in the consoles' game lineups. The 3DS had a fairly dismal lineup at launch, but now has a number of must-haves with more on the way. Similarly, the Wii U has few of the games that people buy Nintendo's products for. This is changing, however, with Super Mario 3D World and Mario Kart 8 seeing release soon and Super Smash Bros. coming out next year. A new title in the Legend of Zelda franchise is also under development. And the company recently released Wii Fit U (an update to the popular title from the original console) as a free trial download that existing Wii Fit owners can upgrade to a full version at a discount by buying a $20 Wii Fit U accessory that is rapidly selling out.

What about next-gen?
Many say that the Wii U won't be able to compete with the upcoming Xbox One or PlayStation 4. This is almost certainly correct. It's also not the point. The original Wii outsold both the Xbox 360 and PlayStation 3 for years despite having only SD graphics and gameplay that was seen as "gimmicky." It wasn't trying to compete with the other consoles from a hardware standpoint, but was instead focused on existing as a very "Nintendo" console.

Similarly, the Wii U doesn't pose a threat to the PlayStation 4 or Xbox One. Both consoles will likely significantly outsell the Nintendo console, but not claiming the No. 1 spot doesn't make the Wii U a failure. While the rivalry between Sony and Microsoft is heated, Nintendo's offerings tend to fall more by the wayside. After all, many don't consider the original Wii to be the "winner" of the last console generation despite leading sales for most of the generation.

Conclusion
The Wii U has had a rough first year, but sales are improving and a number of first-party releases are on the horizon. While this won't make the console outsell the upcoming next-gen consoles from Sony and Microsoft, the Wii U wasn't designed to compete head-to-head with them anyway. Once manufacturing costs drop and gamers start picking up the console to play some of Nintendo's first-party titles, the "flopped" console will likely show that it has more life than many thought.

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Read/Post Comments (14) | Recommend This Article (2)

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 November 14, 2013, at 10:07 AM, Stealth2k wrote:

    The first smart thing this site has written

  • Report this Comment On November 14, 2013, at 2:25 PM, Croaxleigh wrote:

    I dunno, I've found a number of intelligent articles from fellow Foolish contributors. I don't always agree with them on every point (obviously including articles that I've read which have dismissed the Wii U as a failure already this early in its life), but they're certainly entitled to their opinions. :)

  • Report this Comment On November 14, 2013, at 4:09 PM, melegross wrote:

    This article isn't good. It's full of wishful thinking.

    First of all, the 3Ds isn't doing as well as the article is saying. At its peak, the DS sold slightly over 30 million one year. The next years' sales were expected to be 35 million, but again were around 30 million. They began dropping rapidly after that.

    The 3Ds was supposed to overcome those losses with the 3d feature! which originally was supposed to be incorporated into the game play itself. Because of problems with younger people's eyesight, that wasn't possible, and now, the 3d effects are of little use.

    But 3DS sales are now just 15 million this year, half of the Ds's peak. This isn't good.

    The WiiU has been a failure so far, and all the excuses won't change that. Because of the requirement that Nintendo sell the WiiU at a loss, because if poor sales, for the first time, the overall company has suffered a gigantic loss for the first time in its history, and expects to do so again.

    I don't know how any of this looks good to anyone.

  • Report this Comment On November 14, 2013, at 6:50 PM, DatPSVita wrote:

    It's so funny to me how fanboys and haters think the Wii U is a failure after being on the market for 1 year and has only sold 4 million.

    On the other hand, the Vita has been on the market for 2 years and has only sold 6 million, yet people are nagging and saying "Give it more time!"

    Fanboys. You just can't interact with them...

  • Report this Comment On November 14, 2013, at 6:57 PM, DatPSVita wrote:

    Melegross, your information seems to be pretty inaccurate. The 3DS as of September 30th, 2013 has sold 34.98 million units worldwide.

    And with Pokemon X&Y quadrupiling 3DS sales to this day after a month the game has been released, 3DS sales are most likely going to be around 40 million by March 2014.

    For a three year console by then, that's damn impressive. But of course, nothing can outsell the DS this generation.

  • Report this Comment On November 14, 2013, at 10:07 PM, smilezjp wrote:

    I am not a fan of Nintendo, but I will say this. You are right! You have to look at it from a developers stand point, they are losing money on the Wii because of low console sales, when you have low console sales then game sales will suffer too.

    Developers are just fustrated with Nintendo because they are losing money too. I currently have the PS3, and Sony felt the wrath of the developers for the first 2 years it came out because Sony sales were low. Sony had the expensive price tag, and hardly any games. The Wii U sales are scary low worst than what Sony was going though. Developers have a right to be upset, yes sometimes the truth hurts, but Nintendo needs to hear this so they can get it together.

    This is the console that Nintendo should have launched with the PS3 and Xbox, also the name the " Wii" isn't helping it's case. They should have called it the Gamecube 2 or Super Nintendo HD anything but the Wii. DS sales are keeping Nintendo relevant and keeping them afloat. This isn't the first Nintendo console to fail. Nintendo 64 and The Gamecube. From what I see the Wii U will be Nintendo last and final console. As far as the handheld market, Nintendo has that on lockdown without a doubt.

  • Report this Comment On November 14, 2013, at 10:34 PM, joujou77 wrote:

    @smilezip you had me at "I'm not a fan of Nintendo" that says it all. TROLL!

  • Report this Comment On November 14, 2013, at 11:09 PM, smilezjp wrote:

    Just because someone is not fan of Nintendo doesn't mean that I am trolling. I can give my opinon even if I am not a fan. My response wasn't negative, I was just stating the facts. The article is was on the front page of yahoo, no one is trolling. I had the Nintendo 64 and Gamecube and once the Wii came out I was no longer a fan.. Get over yourself already.. You Nintendo drones are something else.

  • Report this Comment On November 15, 2013, at 2:40 AM, captAhab02 wrote:

    really nintendo needed to rise 20 % in value in 2 weeks before motley fool says something half positiv about the stock.

  • Report this Comment On November 15, 2013, at 2:57 AM, anonMotley wrote:

    Q: What company has been the top seller of video game hardware in the US each of the past six months?

    A: Nintendo

    ...why would people think it is doomed?

  • Report this Comment On November 15, 2013, at 3:28 PM, Croaxleigh wrote:

    Smilezip: I don't remember the N64 being much of a failure. It sold over 32 million units (by comparison, the Super Nintendo only sold 49.10 million in a lifespan nearly twice as long as the N64's), carried titles that to this day are considered some of Nintendo's best, had the most powerful CPU of its generation, and after it was discontinued was still voted the #1 console by registered users in a G4 poll. It did begin losing market share as its life went on, which was due more to devs preferring its CD-based competitors as games got more complex later in the generation (since the cartridges gave them less space to work with.)

    The GameCube was probably closer to failing, as it sold only 21.74 million units (though it wasn't very far behind the Xbox in that regard, as it only sold 24 million.) It still had a decent legacy, however, though it kind of hurt itself by going with the mini-discs against consoles with full DVD features.

  • Report this Comment On November 15, 2013, at 5:29 PM, DatPSVita wrote:

    I don't get why people desperately want Nintendo to go third-party. If you hate Nintendo games, why in the world do you want them to end up on your precious Playstation or Xbox?

    Nonetheless, Nintendo "ending up like Sega" is one of the most fanboyist things I've heard during my gaming life. Sure, Nintendo might have a failing console on their hands, the similarities between Nintendo and Sega pretty much end there.

    Sega's demise was due to an entire stream of failed hardware. In 9 years, Sega produced 5 pieces of hardware. And all of them were failures. The Sega 32X, Sega CD, Sega Saturn, Sega Nomad, and the Sega Dreamcast. All in just 9 years. Each causing Sega to bleed out money through their veins.

    Meanwhile, Nintendo lately has had 4 successful pieces of hardware within 10 years. The Gameboy Advance, Nintendo DS, Nintendo Wii, and the Nintendo 3DS. Each literally crapped out gold coins for Nintendo out the @$$ like a speeding rocket. And now all the sudden, Nintendo has a failing Wii U on their hands, they're going to go bankrupt as soon as possible?

    Listen to you fools.

  • Report this Comment On November 16, 2013, at 5:43 AM, NotAnotherTrader wrote:

    I own the 3Ds, and I can say that despite NIntendo's "lower" graphic detail, they still deliver some of the most magical games ever. I don't care if the PS4 can render the hairs down the abdomen of an Amazonian warrior queen in a leather skirt

  • Report this Comment On November 22, 2013, at 8:13 AM, Havenchild wrote:

    I have bought a Wii U personally to at least claim I played the system. I initially planned on trading it this month fo the PS4. However I can say with utmost certainty, I will be keeping the Wii U. I too was a no-believer in the system and felt it was going to fail out the gate. However after playing it for myself, I find myself amazed at the product Nintendo has produced. The tablet controller is brilliant in its own right. I managed to pick up Wonderful 101 and Sonic Lost World, both fantastic titles and execute very well.

    If everyone held this system in there own hands, im convinced the public perception of it would make a dramatic shift to positive, especially now that strong games are coming out for the system.

    Theres a popular creed of everyone should hate Nintendo, but people are not looking at the bigger picture or actually have the console. What the system needs is simply, must-have games. They will come and when they do people will realize how great the system is. Super Smash Bros is gonna destroy the market.

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