Nintendo (NTDOY -5.16%) is one of the most influential gaming companies in the world. Its Super Mario Bros. series became one of the best-selling video games of all time, with more than 40 million copies sold, and is regarded as the best game created ever by several magazines, reviewers, and TV channels, including G4, which praised its revolutionary gameplay.
However, the Japanese gaming company has been struggling with weak sales for the past five years. This year, sales of its Wii U flagship console were so weak -- 3.45 million Wii U consoles sold versus a 4 million target -- that Nintendo canceled its press conference at the biggest video gaming show of the year, the E3 conference. This week, negative momentum strengthened after the company was passed over for inclusion in the Nikkei 225. Why is Nintendo losing the console war against Sony (SONY -4.04%) and Microsoft (MSFT 0.29%)?
Source: YCharts
The console war
There's an ongoing global war for supremacy in the console-gaming industry, featuring Microsoft's Xbox, Sony's PlayStation and Nintendo's Wii as main players. Apart from marketing campaigns, each has invested significant capital to build strong relations with developers and created active communities of gamers.
No mobile exposure
However, only Nintendo is completely exposed to the gaming industry. Microsoft is active in every important tech market, from smartphones to cloud solutions. Sony is also well-diversified, with exposure to the electronics business, the entertainment arena, and smartphone manufacturing.
This is not good news for Nintendo, because consoles are under serious attack from the smartphone industry. Gaming is becoming increasingly mobile. It represents 39% of time spent on smartphones and 67% of time spent on tablets. But unlike Sony, which developed the amazing Xperia Z flagship smartphone, or Microsoft, which recently agreed to buy Nokia's mobile business, Nintendo has no exposure to mobile.
A desperate move
On the other hand, competition in the console world became so fierce that, in an aggressive and risky move, Nintendo decided to release its Wii U latest console a full year before its competitors. However, the company did not manage to sell the 4 million units it had expected, probably because the Wii U lacks many online features, and because its graphics are only slightly better than those of the Xbox 360 and the Sony PlayStation 3, which belong to a previous generation.
Moreover, Sony will release its PlayStation 4 on Nov. 15 in the U.S. at a very competitive price. Unlike Nintendo's Wii U, the PS4 will offer game DVR. It will be equipped with an amazing Advanced Micro Devices (AMD) Radeon Graphics Core engine with 1152 shaders, while Nintendo uses an AMD engine with 320 shaders.
To make matters worse, Microsoft will release its Xbox One on November 22. This device will integrate live TV, web services like Skype, movies and games, using Kinect's voice recognition capabilities, but each device will be sold for roughly $100 more than Sony's PS4. Both the Xbox One and the PS4 will be equipped with a strong 8 cores processor and 8 gigabytes of memory. These specifications are far more superior than the Wii U's 3 core processor and its 2 gigabytes memory.
Furthermore, both Microsoft and Sony have included extensive support for external storage, cloud storage, remote download and "play as you download" features, which are very important for cloud gaming. Nintendo hasn't.
My Foolish take
There's a huge tech gap between Nintendo and its competitors. It seems the company tried to catch up and buy some time by releasing its flagship console one year in advance. However, because the Wii U did not offer a major improvement in graphics, connectivity or processing speed, sales have been disappointing.
Now time's up. Sony and Microsoft are releasing their flagship consoles next month. Furthermore, Nintendo has no mobile exposure, which is a great disadvantage considering the increasing amount of time gamers spend on smartphones. Nintendo will have to rely on its last weapon to survive the fierce console war: its rich intellectual property. Will this be enough to save Nintendo? Only time will tell.
