Nintendo Sees Loss Due to Weak Wii U Sales

The video game maker has been facing stiff competition.

Jan 28, 2014 at 2:00AM

Nintendo (NASDAQOTH:NTDOY) drastically cut its sales forecast after its flagship Wii U game experienced depressing sales. In response, the game maker said it would post an operating loss, which will place added pressure on the multinational consumer electronics company to take serious action to turn its business around, according to the Wall Street Journal. On Jan. 17, the Japanese game maker said it expected to sell a mere 2.8 million Wii U consoles. This was a big blow for Nintendo, as this figure was less than one-third of initial sales estimates.

Despite Nintendo's price cuts and rich lineup of titles, such as the latest entry to its Super Mario Bros. franchise, the company will sell even fewer Wii U's in the console's second full year of sales. That's less than it did during the first five months after the console was introduced. Wii U performed the weakest in overseas markets during the peak period -- the year-end holiday season. Nintendo's rivals, Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) are doing much better, further adding to the company's woes.

Microsoft and Sony are performing better
Both Microsoft and Sony reported rapid sales of their new consoles, which initially released in November. If intentions were to increase competition for Nintendo, it worked. During a news conference in Japan, Nintendo President, Satoru Iwata, admitted he had misread the market and hadn't issued "the appropriate instructions." Iwata said the company needs to change and "propose something that surprises our customers." Plus, "the way people use their time, their lifestyles [and] who they are have changed." Iwata went on to say that Nintendo was considering "a new business structure," but declined to elaborate. Nintendo plans to have a strategy briefing on Jan. 30, so expect drastic changes by Nintendo in the near future.

The Japanese company's difficulties come amid larger concerns about competition from console-based free or inexpensive videogames that are played on personal computers, smartphones, and tablets. In the U.S., Nintendo's sales of new consoles plunged for more than a year. Last fall, Nintendo experienced a brief relief from poor sales, until the new Sony and Microsoft consoles hit store shelves. Nintendo software sales also dipped again in November and December, according to market research firm NPD Group.

How many more consoles?
How much better have Sony and Microsoft been doing than Nintendo? Sony's new PlayStation 4 and Microsoft's Xbox One -- the first new consoles from both companies in over six years -- were met by long lines of fans waiting to grab both new hardware and companion games. Sony reported sales of 4.3 million consoles by the end of the holiday shopping season, and Microsoft reported sales of 3 million units. While Nintendo did not provide actual calendar year sales numbers for its Wii U, the company admitted its hardware and software sales experienced "a huge gap from their targets" in the U.S. and European markets.

But, don't be so quick to count Nintendo out. The latest setback experienced by the world's largest video game company is far from being a fatal one, as Nintendo was sitting on $4.44 billion in cash at the end of November. Analysts, investors, and Nintendo's game fans have insisted on some kind of change in the company's strategy. Suggestions have included releasing some of the company's more popular game franchises (such as Super Mario Bros. and The Legend of Zelda) on mobile devices. Others have suggested experimenting with online free-to-play formats. In spite of this being Nintendo's third straight annual loss, the company stressed it would still pay dividends this year. Last Friday, Nintendo's U.S.-listed depositary shares finished the day down 17%.

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Fool contributor Tyrone Cousin has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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