Nintendo reports disappointing earnings, slashes forecast

It's been a rough week for consumer-facing entertainment companies. First it was Netflix's earnings report showing a bigger than expected loss of subscribers, then Amazon failed to meet Wall Street's expectations due in part to large investments in infrastructure.

Now it's video gaming giant Nintendo coming under scrutiny. Just a few years ago the Internet was rife with an "It prints money!!!" meme referring to Nintendo's vast success with its Nintendo DS handheld gaming system (and later extending to the success of the Nintendo Wii when it grabbed the attention of many non-gamers.)

But the Nintendo DS is now last generation, Wii fascination has faded, and Nintendo is having a hard time selling its latest handheld, the Nintendo 3DS, to a population that seems more interested in gaming on their smartphones. Back in July the company warned investors of a grim future when it dropped its fiscal 2012 earnings forecast from ¥110 billion profit to ¥20 billion.

More recently the company had forecast a first half loss of ¥55 billion, but today the actual numbers were released and the loss was even larger than predicted: ¥70.27 billion (about $924 million). Worse, the company has revised it's annual forecast and now is predicting a net loss of ¥20 billion (about $263 million) for the fiscal year ending in March 2012. [Sources: Current, Forecast]

In addition to soft sales of the Nintendo 3DS, the strong yen is also hurting the company; Nintendo makes 80% of its sales overseas.

I'm not a financial analyst, but to me Nintendo's near future looks challenging. The company slashed the price of the 3DS from $249.9 to $169.99 on August 12th but that hasn't seemed to shake things up all that much. Its next console, the Wii U, isn't expected until holiday 2012 at the earliest, and possibly not until some time in 2013. It seems unlikely the company can breath new life into the existing Wii; it really needs to get the gaming population excited about the 3DS if it wants to recover in the next year. Great games might do that, assuming there's still a market for handheld gaming devices.

Sony's new handheld, the Playstation Vita, will offer more competition to the 3DS in December (in Japan) and February (in other regions). It remains to be seen if Sony will have any more luck in the dedicated handheld gaming space, or whether smartphones and tablets have put an end to the market for handheld gaming hardware.

Read more of Peter Smith's TechnoFile blog and follow the latest IT news at ITworld. Follow Peter on Twitter at @pasmith. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.

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