Will Executive Pay Cuts be Enough to Save Nintendo?

To say that 2013 wasn't kind to Nintendo would be an understatement. While 2014 looks bleak, the company does seem to have a plan to move forward and try to turn its fortunes around.

Feb 4, 2014 at 9:14AM

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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John Casteele has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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