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Will Executive Pay Cuts be Enough to Save Nintendo?

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To the surprise of no one, Nintendo (NASDAQOTH: NTDOY  ) reported a significant loss of around $15.3 million when it released its financial results for the fiscal third quarter. This followed a major cut to the sales forecasts for both the Wii U and the Nintendo 3DS, prompting a lot of speculation on exactly what the future of the company (and its CEO) might be.

After breaking the bad news, Nintendo CE Satoru Iwata announced that he would take a 50% pay cut while other executives would take cuts of 20% to 30%. These cuts are slated to last for five months and serve as a way to both atone for management failures and cut expenses in light of disappointing sales. This isn't unheard of, as Iwata took a similar cut in 2012 when Nintendo reported its first loss since going public; that cut was for 67% of his salary, dropping it by more than $1 million.

Shooting down the rumors
The big question facing Nintendo is where it will go from here. The company admits that what it's been doing so far isn't working, but also states that some of the most commonly suggested solutions -- becoming a software-only company like Sega or developing games for smartphones -- aren't going to happen. While a marketing-focused smartphone app with ties to players' Nintendo Network IDs may be released, that's as close as people are going to come to getting Mario on an iPhone.

Another thing that seems certain is that Nintendo isn't ditching the GamePad. Though some have touted the apparent lack of GamePad use in the upcoming Donkey Kong Country: Tropical Freeze as a potential sign that a Wii U sans GamePad may be in the works, Iwata insists that the company isn't giving up on the GamePad, adding that the company will focus on software titles that make good use of the peripheral (including its essentially unused NFC capabilities) moving forward.

Key 2014 releases
While Nintendo no longer boasts expectations of unattainable sales figures, it does have a few strong titles releasing in 2014 for Wii U owners to look forward to. The next entry in both the "Smash Bros." and "Mario Kart" franchises are due out this year, with the latter announced recently for a May release. The aforementioned "Donkey Kong Country" title is slated to release later this month, and a "Zelda"-themed game from the creator of the "Dynasty Warriors" series (tentatively referred to as "Hyrule Warriors") is scheduled for release later this year as well. Yarn Yoshi, a successor to the Wii's Kirby's Epic Yarn, and a new "Legend of Zelda" game may be released in 2014 as well.

The Wii U's third-party support is weaker than ever, though. In a list of games confirmed for a 2014 release, the company only listed a few third-party games, including two LEGO games and a movie tie-in. That's not to say that this is all of the games that will be released by other companies this year, of course. But with so few confirmed releases, it shows that Nintendo is struggling with third-party support compared to the current Xbox and PlayStation consoles.

Some have made a big deal about Ubisoft's (NASDAQOTH: UBSFF  ) Watch Dogs not being on Nintendo's list, especially after rumors flew a week or so ago about the Wii U version of the game being cancelled. The initial rumor surfaced after a computer glitch at GameStop removed the game's preorder in Italy, though this was corrected by the company and preorders are still available through most major retailers. As the preorders are still available and neither Ubisoft nor Nintendo have made any comment regarding the game's cancellation, it's possible that the game wasn't included on the list because a release hasn't been confirmed for the game yet. The game has already been pushed back from a 2013 release, and though an April release is rumored, it has not been confirmed.

Can Nintendo bounce back?
Nintendo has a hard road ahead of it, and at this point I don't think that even the higher-ups in the company are holding out hope that the Wii U will turn into a surprise hit. Between the stagnant Wii U and slowing 3DS sales, the company has definitely seen better days. Iwata confirmed that the company wasn't giving up on the console, but it's highly probable that Nintendo's R&D is already hard at work on new hardware ideas to get the company back on track.

That said, Nintendo has the money to avoid a knee-jerk reaction. It is currently sitting on over $8.6 billion in cash and cash equivalents and has no debt, and is even planning a $1.2 billion stock buyback to return value to investors to help make up for the year's losses. While there's pressure on Nintendo to push forward, it's important that the company gets things right when it does because it can only afford so many second chances.

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Read/Post Comments (8) | 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 February 05, 2014, at 3:23 AM, TheMightyPikachu wrote:

    "Oh look, another Motley Fool Nintendo-bashing article. How surprising."

    Yes, what we really need, what the video game industry needs, what Nintendo needs, is a good article from a corporate raider. Divert resources into expansion into a market in which Nintendo has no resources, fire half the workers, shut down manufacturing plants, and with the money saved, give the CEOs all a big pay raise. Then when the company continues to tank, sell off all the remaining physical and human resource assets on the cheap to other companies and fold the company. Get a government bailout if you can, then sell the company to a foreign investor. Sheer genius. Never mind sustainable industry, push that short term profit now!

  • Report this Comment On February 05, 2014, at 1:44 PM, BHGamer wrote:

    As a collector for over 20 years, I also consider myself sort of a gaming historian. Historically Nintendo has relied on 3rd party to sell consoles, not first party. For example, see N64 and Gamecube when Square and others jumped ship, that started that decline. Nintendo themselves, when you think about it, do not really release that many games. It's certainly not enough to save a system. Without 3rd party support the systems done. Again, look back at the history, systems that lacked 3rd party support did not last. Neo-geo with SNK had fantastic 1st party games, but even that wasn't enough to save the Neo-CD, which brought the price of the games and system down from the AES. 3DO was the same way, yes it was expensive at first, but it released cheaper option but in the end, the system had little 3rd party support and it failed. Atari Jaguar, another, literally no 3rd party support or just support from obscure companies, and it failed. I feel with the Wii-U, the lack of 3rd party support is the killer. A new system is not going to help Nintendo either, the damage is already done.

  • Report this Comment On February 05, 2014, at 11:46 PM, hisradness wrote:

    @BHGamer, historically speaking, about 60% of Nintendo software sells come from in-house productions. The highest selling game of all time was Wii Sports(granted that was due to bundle sells). They could possibly break even on the Wii U, if Zelda comes out within a year and they market Super Smash Brothers and Mario Kart properly. Neo-Geo had a few good games, but cost $600 when everything else was about a third of that price. Look what that's doing to the XBox One now, price alone is a big factor. Atari's was so mismanaged by its CEO(I think he was corrupt as well) that they were doomed regardless. Comparisons between Nintendo and the companies you named are senseless. Nintendo relies on its core following, which at this time they haven't delivered titles they want. The games I mentioned could change that.

  • Report this Comment On February 06, 2014, at 9:54 AM, targeyone wrote:

    At least Executives are taking pay cuts, rather than laying off 32% of their workers by March 2015.

  • Report this Comment On February 06, 2014, at 2:45 PM, BHGamer wrote:

    How about the executives pay cut their own damn games? I mean really, does Mario Kart for DS still need to be $35? You want to sell more games? Lower your prices Nintendo, all your first party games are always sold for top dollar, guess what, not everybody buys the game as soon as it comes out. I myself wait for it to be $20 so i'm willing to wait years, but Nintendo first title games never get to that point.

  • Report this Comment On February 06, 2014, at 2:54 PM, BHGamer wrote:

    @hisradness: I would really like to see some numbers here buddy if you got them, there's no way that from 1985 to whenever the N64 came out that 60% of all total software sold was first party, it's just not possible, and no you cannot count pack in's. The NES itself had over 1,000 released games of which what, 25 are first party? SNES was the same way, with nearly 1,000 if not 1,000 games and again, what maybe 25 first party? It's simply just not possible. Maybe it's 60% now because of the dismal 3rd party support, but historically, there's no way in hell, I need to see some proof there. the comparisons are not senseless, I said the Neo CD, not the AES, and SNK had a few? FEW?? Almost every game they made for the Neo Geo was good. Atari, regardless of how the company was run, made an effort to get back into the run, it released 2 systems during this time. Say what you want about the systems themselves, but graphically it could've competed with the SNES/Genesis and early PS1 stuff and who knows if the CD would have ever taken off, but the point again was it was a system that could compete, but it had no 3rd party software support. You think if the Jaguar had games like Duke Nukem 3D, Ultimate Mortal Kombat, and other game of that caliber at the time it wouldn't have sold better? Of course it would, the Jaguar could produce the games at the same arcade quality. It just never happened.

  • Report this Comment On February 07, 2014, at 1:29 PM, hisradness wrote:

    @BHGamer, the number of games is irrelevant compared to SELLS. Go back and look at Nintendo's biggest hits, Zelda, Metroid, Mario, Star Fox, etc., all in house. Neo Geo had but a handful of games and the system cost too much, DEATH. Atari was raped by its CEO, no comparison.

  • Report this Comment On February 07, 2014, at 3:41 PM, stretch90 wrote:

    Great title..... What does Nintendo need to be saved from? Being the most profitable gaming company?

    The Wii U is slow but Nintendo is still in amazing shape and MUCH better than the competition. I want to start seeing articles called "How to save Sony". Because they need it the most...

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John Casteele

John Casteele is a freelance writer, editor, and occasional web cartoonist. He prefers long-term investments, largely in retail, medical, and tech.

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