The lead-in to the E3 conference always generates a healthy shake of rumors. One of the most widely circulated bits of speculation over the past couple weeks has been that Nintendo (NTDOY +0.85%) will debut new hardware around the time of the June gaming expo. The company recently released its results for the last fiscal year, posting an operating loss of $457 million, a net loss of $229 million, and a reduction of cash assets from $4.7 billion to $3.4 billion. Investors were justifiably spooked.
While Nintendo's bottom line numbers for the last year are not a good sign, the most worrying information from the company's fiscal report is the extent to which its hardware business is struggling. With the Wii U weighing the company down and the 3DS starting to lose steam, it makes sense that attention is turning to what Nintendo will do next on the hardware front. While the company will seek to diversify its revenue streams with a push into "quality of life" products, the introduction of successful gaming platforms is still vital to the company's future. Will Nintendo reveal a new system at E3?
Rumors, speculation, and a solid bit of evidence
Reporters from a number of gaming outlets have claimed to have inside information on Nintendo's plan to debut a new system around the time of the June expo. Additionally, the HTML code for the company's conference website once contained a bit of titillating text. Before being altered, one of the keyword fields read: new Nintendo system. The combination of these elements produced an explosion of speculation as to what the company will reveal at the show.
Some have surmised that Nintendo will introduce a next-generation handheld or home console. Others have pointed to an introduction of QOL hardware as a likely move. Recent news that Nintendo plans to launch new hardware for developing markets creates yet another possibility for an E3 reveal. Still, there's an even more probable outcome.
What will Nintendo show?
If Nintendo debuts new hardware at E3, signs point to it being a revision of the 3DS. The company's targets have it selling 12 million 3DS systems in the current fiscal year, a number that seems mighty optimistic, given current trends. For Nintendo's recently concluded last fiscal year, the company initially expected to sell 18 million units of the handheld. This was later revised to 13.5 million units. Actual sales came in at just 12.24 million units for the year, despite the 3DS enjoying what will almost certainly wind up as its strongest year for software.
While Nintendo has recently announced that new Pokemon remakes will be hitting the 3DS in the fall, this year's lineup doesn't hold a candle to what was launched in the last fiscal year. Even with price reductions, the year's software lineup will not be enough to propel the 3DS to Nintendo's projections.
3DS needs a power boost
Year-to-date sales of the 3DS in Japan are down almost 50%. The handheld, and Nintendo at large, are rapidly losing consumer interest in Europe. A new 3DS iteration is needed to inject life into the company's handheld business and generate revenue for what looks to be a transitional year. Without such a move, Nintendo will fall well short of its hardware sales and operating profit targets.
Nintendo has been no stranger to inaccurate projections over the last several years. That said, the company no longer enjoys the luxuries that make those types of miscalculations excusable. Nintendo forecasts an operating profit of approximately $394 million for the current fiscal year, one that will see the company investing heavily in research and development for its next-generation gaming platforms. The company will also need to spend heavily if it is going to compete in the increasingly crowded health and wellness segment. Revenue is going to have to come from somewhere, and it's certainly not going to be the Wii U.
Nintendo's push into Skylanders-like Near Field Communication toys should be successful, but not enough to meaningfully offset what the company is going to have spend this year. Introducing a new 3DS seems to be a necessary move.
Nintendo is reliant on its traditional business for this year
Nintendo will fall well short of its profit projections if it cannot get sales of the 3DS close to its target of 12 million. Odds of the handheld achieving that feat without a hardware revision are slim. The company is not in a position to reveal its next-generation hardware and will have to rely on its available revenue streams until the QOL project is ready. A new 3DS isn't the exciting unveil that the rumor mill craves, but it's smart business. Expect a revised version of the handheld to debut at E3.
