Is Nintendo's CEO Heading for the Chopping Block in 2014?

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Nintendo (NASDAQOTH: NTDOY  ) President Satoru Iwata has overseen some of the company's greatest successes and some its most discouraging failures. The success of the Wii has not carried over to its successor, and despite the 3DS posting solid numbers, dedicated handheld gaming is under attack from mobile. After posting rare losses in its 2013 fiscal year, Iwata promised that the company would return to Nintendo-like profits with an operating profit target of 100 billion yen.

The CEO went so far as to stress that it was his commitment to hit the target, and it was widely interpreted that this meant that he would step down in the event that the company fell short. Now, Nintendo's Wii U disaster looks to guarantee that it will fail to meet his lofty goals. Will 2014 be the year that Nintendo adopts a new direction and Iwata is replaced?

What's in a commitment?
Along with the fiscal profit targets, Iwata also stated that the company saw the Wii U selling 9 million units in the fiscal year. The company looks to miss that target by a wide margin, but selling more Wii U consoles isn't necessarily a ticket to hitting its approximately $1 billion fiscal year profit goals. In order to get the Wii U to sell at its present, albeit meager, rate, Nintendo had to implement price cuts and software bundles when the system already sold at a loss. Profits generated by the 3DS will go toward covering the losses associated with Wii U.

Halfway through the fiscal year, Nintendo had sold approximately 460,000 Wii U's, or a little more than 5% of its target. Despite these dreadful figures, Iwata and company opted against issuing a more realistic yearly forecast. With the importance that holiday sales periods have in the console gaming industry, Nintendo enjoyed a bit of cover from critics who disagreed with an adherence to the 9 million unit target. With Nintendo's third quarter earnings report set to be released on Jan. 29, that small comfort will quickly become a thing of the distant past. The view that the company presents around this time will say a great deal about the direction in which it is heading.

Nintendo's old guard
After disappointing second quarter results, Iwata stated that a major overhaul was not necessary to preserve Nintendo's future. This statement could have easily been taken as a reference to his job security. Just a month prior, he was clarifying that failure to meet his fiscal targets did not mean that he would tender his resignation. Most of Nintendo's principal owners are close to the company, so Iwata does not have much reason to worry about a populist shareholder's revolt. His close relationships with recently deceased former-President Hiroshi Yamauchi and gaming innovator Shigeru Miyamoto, along with a Japanese corporate culture that is less inclined to firings and shakeups, will continue to work in his favor.

Please understand the 6 million unit difference
With almost comical regularity, Iwata's summations of Nintendo's shortcomings are accompanied by the phrase, "Please understand." Iwata's repeated promises that the company has learned its lessons and is on the right track might be about to catch up to him. A generous estimate sees the Wii U selling approximately 3 million units in the fiscal year. The console's stumblings mean the company will fall well short of its profit target.

Ceding the console space to Sony and Microsoft?
It will take major strategic changes to propel the Wii U into serious competition with the Sony (NYSE: SNE  ) PlayStation 4 and the Microsoft (NASDAQ: MSFT  ) Xbox One. Sony's system looks to be establishing an early lead in the so-called console war, while most projections don't see the Wii U as a serious competitor. The PS4 and Xbox One both outsold Wii U's LTD sales in the UK within days of their respective releases.

Nintendo's current structure necessitates that it stay in the console space, and if Iwata cannot institute the drastic action needed to ensure that it can do so then he should not be running the company. He has managed to endear himself to portions of Nintendo's fan base with his zany behavior in the company's Nintendo Direct pressers, and as a former developer he has experience at multiple levels of the industry. But the Nintendo Direct videos that he has championed have led to the company opting out of industry megashows like E3 and losing media presence. Iwata may be well-liked, but the man is no longer producing results.

If the numbers don't go down, Iwata's time is up
How Nintendo revises its forecasts in its impending quarterly report will speak volumes about the company. In the unlikely situation that it once again refuses to revise its profit and Wii U targets, expect Iwata to take full responsibility come the end of March. A more probable scenario sees a tempering of expectations, a healthy dose of "please understand," and Iwata sticking around until at least the next fiscal year.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On January 11, 2014, at 3:06 PM, wizardaeon wrote:

    as much as I would love to see a change in leadership at Nintendo, seriously, Motley Fool, your bias is very obvious. Stop trashing Nintendo. Youre making yourself look bad. It didnt help Adam Sessler either.

  • Report this Comment On January 11, 2014, at 10:45 PM, onebluephish wrote:

    I agree-MF has been posting several anti-Nintendo articles over the past year; however, some of them are justified-not all.Nintendo missed several opportunities to upstage the competition leaving most to scratch their heads as to why.

    -Why is their eShop still struggling with content?

    -Why are they slow on getting buy in from 3rd party developers?

    -Why have they slowed down on porting content from old titles similar to what Playstation is now testing waters with?

    -Why are fans still waiting for older franchises to be revised/re-imagined?

    -Why have so many titles been pushed back to Q1/Q2 2014?

    -When are they going to take advantage of downloadable expansion content?

    -Why is the fan base having to wait so long for titles to be released?

    A large group of people at Nintendo dropped the ball-don't expect Iwata to be the only one on the outs if 2014 pans out like 2013. Do they have the ability to turn the ship around? Yes, absolutely. Are they on the outs? No. People don't realize how long Nintendo has been around-let alone in this industry-they have deep pockets to ride out the storm (anyone remember visual boy?).

    Bottom line is that they really need to own the stage at E3 this year otherwise MS will take the #2 slot and Sony will solidify #1.

  • Report this Comment On January 13, 2014, at 4:35 PM, Chris328 wrote:

    I started this account just because I had to post. The Motley Fool's idiotic articles are just too much! The biased bashing is so apparent, and so many of the "facts" they provide are outdated.

    The Wii U is selling fine and steady, and with Mario Kart 8, Donkey Kong, Super Smash Bros, Beyonetta 2, X, and more, the exclusive software line up is strong enough to support a purchase for gamers and families alike.

    The Wii U is also a console that will be profitable at every sale in the near future, and Nintendo is in a different lane then Sony and Microsoft, stop trying to compare.

    Also the Nintendo 3DS is the best selling console of this generation so far, and HANDS DOWN has the best library of games, and with the release of the $99 2DS and this upcoming year, and titles like Smash Brothers, Monster Hunter 4, and more, the dominance will continue!

    Its Nintendo...they've been here since the 1800s for Christ sake...The Wii U is an amazing system, with amazing exclusives and with all the bundles available, its the best value on the market! Pick it up and try it out, you'll see

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