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[PaulExcellent]

Yeah, OK.
Same as the Gamecube, right?

 

[maquiladora]

Patcher being born is a mistake that we will never recover from.

Jesus, some of you guys....

smh

 

[Beer Monkey]

It just looks like they're returning to their actual pre-Wiimania worth imo.

So basically we have a return to Gamecube-era Nintendo except they've just released a console that ignores the upcoming generation, has launched poorly, and which shows no signs of getting even decent third-party support.

Pachter is an industry analyst. Everybody in this thread who is predicting the opposite of what Pachter expects to happen should put their money where their mouths are and go out and buy some fucking Nintendo stock right now. Seriously.

 

[Cheebo]

Yeah, OK.
Same as the Gamecube, right?

GameCube had gba, 3ds is a mess right now in the west and no gba.

 

[Omnistalgic]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

tks for elaborating now...makes a lot more sense...But "not recover from" just sounds like they are going out of business, and well, that's just extremely far fetched. But this clarification is a lot more appropriate and well though-out. In my opinion, which may not count for a whole lot, Nintendo can afford to not be as profitable this gen because last gen they made tons of money. Make what you can on software/hardware sales, and in 5 years go back hard in R&D. It's just like drafting in the football league, sometimes, you know you HAVE TO have a sub-par season in order to get an awesome draft pick...It's really Sony's time to show up anyway, they have a ton to prove this gen.

 

[Gahiggidy]

michaelpachter,

What steps can we do on our own to help Nintendo recover? Does world of mouth overcome poor advertising?

 

[TheGreatMightyPoo]

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable.

Truly genius.

 

[Baconsammy]

I'm confused. So they make most money off of software royalties, yet the hardware not being profitable is a dealbreaker? And... isn't this exactly what Sony and MS have been doing for decades?

Sony and MS make shitloads of money off third party license fees. Nintendo struggles with third parties. See the difference?

 

[Grinchy]

I'm not gonna pretend I read through the whole thread, so this has probably already been discussed to death. But a mistake Nintendo can never recover from? How could that even possibly be true? Nintendo could probably afford to make many more mistakes before the company was doomed.

I'd rather see them stop making shitboxes, but they could obviously afford to fuck up more than once. A part of me hopes the WiiU is such a colossal failure that they are forced to put out a real machine on the PS4/Nextbox level (or higher). The thought of a Mario game with next-gen visuals and physics makes me hard.

 

[Sandfox]

I honestly think Nintendo releases a console/handheld hybrid next. Might be the right move for the company.

On the one hand they would be able to put a lot more resources on it than they do on the 3DS and Wii U separately but then you would still have people complaining about a power difference unless Nintendo comes out with a cool idea.

 

[pawelranger]

Not many, a lot less than GBA and DS ever did during their holiday seasons. And less than 3DS did last holiday. In fact DS/GBA in their lifespan never hit the low that 3DS did just in the latest Jan numbers in America that month.

Not to mention 3ds software sales basically fell off a cliff in 2012 in the west.

You are talking about one month, but if you compare the total sales those are bigger than DS and GBA in the same lifespan considering that the GBA and DS weren't competing against IOS and Android is pretty neat, also there weren't any big hitters in 2012 except New Super Mario Bros 2, if you compare with Japan they had a lot of software past year and all of them selling well. We will see when Pokemon arrives if the 3DS is struggling or not.

Nintendo is more worried for the Wii U than 3DS, there is a lot of games for 3DS coming this year and they already have a big install base of 30 million.

 

[Etnos]

I grew up with a snes, It pains me to admit: I care not for anything Nintendo its done the last what, 10 years!? My last Nintendo fun was with Wind Walker.

No sure if Patcher right, I just can say I'm not buying a Wii U anytime soon, and most likely ever will.

 

[Cipherr]

The man is right.

 

[PaulExcellent]

GameCube had gba, 3ds is a mess right now in the west and no gba.

I see WiiU on the title. Not 3DS.
Nevertheless, I agree on the state of the 3DS in the West.

 

[ozfunghi]

Sony and MS make shitloads of money off third party license fees. Nintendo struggles with third parties. See the difference?

No. Pachter says 3rd party royalties is where they get most of their income (even on "overpriced" hardware like DS/Wii, the hardware wasn't where they made their big bucks). Read his post. Clearly they are NOT struggling with 3rd parties if that is the case. So now for WiiU, hardware isn't moving fast enough, and according to him, that's why 3rd parties are hessitant and why this scenario may be different. Then what's the problem with dropping the price of the hardware? Can't have it both ways.

 

[LiveFromKyoto]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

I'm going to have to question your math here. At least 10-15% of the people on this site are assholes.

 

[DjRoomba]

Jesus christ pachter tldr; that essay. who the fuck is gonna read all that

 

[Vane_MagicCity]

Well core gamers gave a shaft to nintendo first.

That was after third parties abandoned Nintendo probably due to Nintendo shafting them for two generations prior to the N64.

 

[Glass Rebel]

No. Pachter says 3rd party royalties is where they get most of their income. Read his post. Clearly they are NOT struggling with 3rd parties if that is the case. So now for WiiU, hardware isn't moving fast enough, and according to him, that's why 3rd parties are hessitant and why this scenario may be different. Then what's the problem with dropping the price of the hardware? Can't have it both ways.

I think he means that 3rd party royalties are where they usually make their money from but don't right now.

 

[Tobor]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

That, gentlemen, is expert analysis. /tips hat

 

[Ikael]

A mistake? Undoubtely

That may never recover from? Son, Nintendo has recover from far bigger clusterfucks such as the Virtual Boy and the Gamecube. They will be fine. Damaged, yet still there.

EDIT: Just readed the Patched wall of text (TM). Will need to reply properly, reasonably and clearly in order to reciprocicate to this fine gentleman

 

[Diablos54]

That was after third parties abandoned Nintendo probably due to Nintendo shafting them for two generations prior to the N64.

Yea, first reviving the industry and then giving them a system where their titles sold tons = Shafting? Really? Come on now...

 

[Gahiggidy]

I don't neccesary think it an issue with the hardware or the concept itself. Wii U is pretty fun. It's strictly a management issue.

Nintendo never factored in how big of an impact the decline of Wii and the negative Wii U press would have on Wii U sales.

Nintendo pinned their hopes on NSMBU and year old ports with the naivety that somehow word of mouth will sell the sytem. They did little advertise the system or to combat the mud smearing that Wii U was getting all over the internet.

Keeping silence is never good.

I largely agree with this with the addition that the case design is a major reason for its lukewarm reception. Would Xbox 360 have done as well if it looked the same as the original Xbox?

 

[Pikma]

"And their handheld business can't save them in the face of cannibalization from smartphones and tablets."

Their handheld business will be fine, Pachter, no need to exaggerate.

 

[Cheebo]

A mistake? Undoubtely

That may never recover from? Son, Nintendo has recover from far bigger clusterfucks such as the Virtual Boy and the Gamecube. They will be fine. Damaged, yet still there.

Both times Nintendo always have the GameBoy or GameBoy Advance to fall back onto, a massively profitable successful handheld.

3DS as said many times is no GameBoy or GameBoy Advance. It's a complete mess of a platform in the west that is struggling to make money on it's own. Nintendo has nothing to fall back onto, which is used to always have for the past 20 years.

 

[eXistor]

Just wait until the games hit. I really doubt it's too late for Nintendo. People can't stay away from AAA Nintendo games. Not saying the WiiU is doing great at the moment, and they definitely should have had more games by now, but they will come and so will the customers.

 

[goomba]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

Sounds like your backtracking , you stated Nintendo would "probably never recover" , thats just sensationalist bullshit. You talk of profit and losses whilst failing to address the currency conversion issues Japan has faced nor hold Sony nor Microsoft to the same profit expectations.

 

[Steve Youngblood]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

Hmm... how can I flippantly declare the opposite of this to be true?

 

[MikeE21286]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

Thank you. Knowledge bombs.

In your opinion is Nintendo in a similar (or worse) position than during the GameCube and N64 era --- from an investment perspective --- and the Wii and DS are really just outliers in Nintendo business?

 

[Mononoke]

Their handheld business will be fine, Pachter, no need to exaggerate.

Isn't the rate of gaming on tablets and phones going up while the rate of handheld sales are going down? Or at least not keeping up with the tablet/phone boom.

I'd be interested to see software sales figures (profit) for tablets/phones vs handheld consoles. Also aren't tablets/phones sold at profit? Granted, tablets and phones aren't sold just for games. But that's also why they are such a threat. You can buy a device that fills all your other needs + gaming.

 

[Omnistalgic]

Copies sold:

Wii Fit: 23 million

Call of Duty: Black Ops II (all platforms combined): ~ 9 million


There's nothing bad about it at all. Even if it only does 1/4 of what it's predecessor did, it would be roughly on par with Halo 4. Even if it only does 1/10th it would still be a big hit.

I agree, but you should also reserve judgment on just how Nintendo casual titles will do on WiiU this gen. Wii was the "IT" thing to have this generation, much like PS2/PS1/SNES were. Very popular with the media/kids/gamers alike. That scenario doesn't seem likely to repeat as the Wiiu isn't as original as Wii IMO, or rather, just hasn't struck a chord with the casual fanbase.

I'll support it later on this year either way, but I don't see it stopping Sony this generation. I think Sony has a ton to prove, and a ton of ground to recover even though PS3 turned out pretty good and will likely finish it's course as a very successful platform selling well this year and next and adding another 15+million to the installed user base. Perception wise though, they have to win back the U.S, and I think Kaz is going to be very aggressive in trying to be recreate the PS2 level buzz.

 

[Drakeon]

No. Pachter says 3rd party royalties is where they get most of their income (even on "overpriced" hardware like DS/Wii, the hardware wasn't where they made their big bucks). Read his post. Clearly they are NOT struggling with 3rd parties if that is the case. So now for WiiU, hardware isn't moving fast enough, and according to him, that's why 3rd parties are hessitant and why this scenario may be different. Then what's the problem with dropping the price of the hardware? Can't have it both ways.

He explained that in his post bud.

If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further.

Just because they make more from 3rd party royalties than from hardware doesn't mean they can afford to make less from hardware.

 

[Vane_MagicCity]

A lot of people? It's a damn cool feature. Playing Fire Emblem right now and it's beautiful at points.

Very few games do it well, Fire Emblem does.

 

[anon_mastermind]

That sentence about 3DS vs. smartphones and tablets makes no fucking sense.

Cannibalization
In marketing strategy, cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer.

 

[Tobor]

Their handheld business will be fine, Pachter, no need to exaggerate.

That's not an exaggeration.

 

[kitsuneyo]

First, I must apologize...

Michael, I used to think you were full of it but I really appreciate you coming here and explaining your reasoning. What's more I totally agree with your points, and I'm a huge Nintendo fan who bought Wii U day one.

You're saying that Nintendo's biggest mistake with Wii U was to build a machine that isn't profitable from the get go, in contrast to their previous consoles. That's what's hurting their profits so badly. I can totally see that argument.

I still believe Wii U will come good as a games machine, but I think there's a good chance Iwata will be stepping down in the next year.

 

[peanutbutterlatte]

Just as the Nintendogs/Brain Age bubble burst, the tablet/iDevice game craze will too. I don't see what it offers for real enthusiasts, and I don't think it's sustainable.

 

[Aquamarine]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

What a fantastic post, Pachter.

Absolutely top quality.

 

[Gahiggidy]

michaelpachter,

As Nintendo well-wishers, who should we hope to be win the "blows Wii U our of the water" battle? Sony or Microsoft? (Or, perhaps we should root for a draw?)

 

[Baconsammy]

No. Pachter says 3rd party royalties is where they get most of their income (even on "overpriced" hardware like DS/Wii, the hardware wasn't where they made their big bucks). Read his post. Clearly they are NOT struggling with 3rd parties if that is the case. So now for WiiU, hardware isn't moving fast enough, and according to him, that's why 3rd parties are hessitant and why this scenario may be different. Then what's the problem with dropping the price of the hardware? Can't have it both ways.

He said that's where they make the most money. And it's where they're not making enough money, and the fact that the hardware isn't selling is exacerbating the problem.

 

[Drakeon]

That sentence about 3DS vs. smartphones and tablets makes no fucking sense.

Cannibalization
In marketing strategy, cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer.

So he used the wrong wording. His point still stands that the 3DS is competing with smart phones, tablets, ipod touches, etc.

 

[Baki]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

hahahah...I would love to see rebuttals posted to this.

That said, I think WiiU sales will not mantain a level of 8-10M per fiscal year. I think that those numbers are quite optimistic for Nintendo. But I guess I'll have to wait and see how the platforms from MS and Sony impact the WiiU.

Their handheld business will be fine, Pachter, no need to exaggerate.

He isn't exaggerating. The software front is particularly dire.

 

[Antagon]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

Have you factored in the influence of the record high yen on the profitability? I'm not exactly an expert on this stuff, but if I remember right the yen was at a record high when Nintendo got their first loss and this had a rather large negative impact on their profitability. Since the yen is getting lower, Nintendo's profitability should be going up again.

They obviously got their work cut out for them regarding the Wii U and won't get back to the combined success of the Wii and 3ds, but I wouldn't be surprised if they get profitable again in the next few years.

 

[Rhindle]

A mistake? Undoubtely

That may never recover from? Son, Nintendo has recover from far bigger clusterfucks such as the Virtual Boy and the Gamecube. They will be fine. Damaged, yet still there.

This should eclipse Virtualboy and Gamecube in the clusterfuck department.

I think Nintendo 3rd party support is basically done. That doesn't mean WiiU is necessarily a complete disaster, it could very well survive as basically a platform for delivering Nintendo franchise titles. That would be a function of whether Nintendo can turn a profit on a platform even with a smallish installed base and minimal 3rd party royalties.

Basically a GCN rerun, but with even worse 3rd party sales.

 

[Vane_MagicCity]

What exactly is that? How would this be different than a regular portable?

A handheld with TV out and accepts WiiU controller wireless signals.

 

[Baconsammy]

That sentence about 3DS vs. smartphones and tablets makes no fucking sense.

Cannibalization
In marketing strategy, cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer.

His point is fine if you accept that the market isn't expanding.

 

[Refreshment.01]

On the one hand they would be able to put a lot more resources on it than they do on the 3DS and Wii U separately but then you would still have people complaining about a power difference unless Nintendo comes out with a cool idea.

I gave then a cool idea to get away with releasing craptastic consoles specs wise. The idea is not perfect but interesting at least.

 

[Coolwhip]

michaelpachter,

As Nintendo well-wishers, who should we hope to be win the "blows Wii U our of the water" battle? Sony or Microsoft? (Or, perhaps we should root for a draw?)

You're acting like Pach is an oracle

 

[pawelranger]

First, I must apologize for calling two thirds of you assholes. It's probably more like 5%, so I was overly sensitive in my generalization.

Second, and to the point, there is actually some reasoning behind my comments that the Wii U is a mistake from which Nintendo may not recover, and I threw the 3DS' cannibalization from smart phones and tablets in there to make a point.

Nintendo has historically made money, and a lot of money, on each hardware unit sold. The DS at $99 US is more profitable for them than the 3DS at $169 (see many quotes from Nintendo in Kyoto about losing money, or being barely profitable). The DS sold 23.5 million units in FY:07 (ended March 31), 30.3 million in FY:08, 31.1 million in FY:09, and 27.1 million in FY:10. Nintendo made money, and a lot of money, in each of those years.

I think it is instructive to use operating income in Yen as a guide, since Iwata said he would consider resigning if Nintendo did not earn ¥100 billion in FY:14. Nintendo made ¥90 billion in FY:06, ¥226 billion in FY:07, ¥487 billion in FY:08, ¥555 billion in FY:09, and ¥356 billion in FY:10. In FY:11, DS sales dropped to 17.5 million units, and operating income fell to ¥171 billion; in FY:12, combined DS and 3DS sales were 18.6 million units, but operating income disappeared, and Nintendo generated a LOSS of ¥37 billion. Obviously, the loss was impacted by lower Wii sales and lower software sales, but the point here is that the 3DS doesn't generate much of a profit per unit, if any, and the DS did.

Over the same period, Wii hardware sales were 0, 5.8 million, 18.6 million, 25.9 million, 20.5 million, 15.0 million, and 9.8 million. We have been repeatedly assured by Nintendo that the company makes a profit on every Wii sold, but as sales leveled off at 10 million, the company printed its first loss ever.

In FY:13 (the current year, ending next month), Nintendo is projected to sell 17.3 million DS and 3DS units combined, and to sell 8 million Wii and Wii U units combined, and is projected to generate an operating loss of ¥20 billion. That means that current levels of sales keep the company at roughly breakeven.

My comment about the Wii U being a "mistake" from which the company "may not recover" was intended to say that if Wii U sales don't materially improve, Nintendo is unlikely to be profitable. They have around ¥1 trillion (around $11 billion) in cash, so they aren't in danger of going out of business for decades. However, if they aren't profitable, they aren't doing a good job for shareholders.

To elaborate, if the Wii U is not generating profits, and if the 3DS is not generating profits, the only thing that will generate profits is software. Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. Publishing (software) revenues peaked at ¥675 billion in FY:09, and are on track to come in around ¥235 billion this year; my call is that if hardware sales don't materially improve above current combined levels, software sales are unlikely to materially grow. If software sales don't materially improve, losses or break even will become the norm. Nintendo will not "recover" to its formal highly profitable glory.

The poor sales of the Wii U in January are likely to impact third party publisher plans to support the console. Notice that GTAV is not on the Wii U; that wasn't a typo, they don't see enough promise in sales to cause them to spend extra development dollars on a Wii U version. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I'm wrong, I'll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.

Many of you point out that the 3DS is selling better than the DS at a similar point. That's true, but the DS was always profitable, and the 3DS is not. Also, the DS saw sales go from 8.8 million units in its first four quarters to 18.0 million its next four, to 20.2 million in its third full year; I'm pretty confident that the 3DS will not get to 20 million units, but even if it did, it would generate little profit from hardware. Keep in mind that the DS redesign to a lite version boosted sales, and there was little competition for 12 year-old and older from smart phones and tablets. Now, parents who can afford it are opting for Kindles, iPads, and smart phones for their teenagers, and the more casual of those are perfectly happy playing Angry Birds and putting their DS or 3DS into a drawer.

The important point is that if 3DS sales level off at 15 million and Wii U sales level off at 8 - 10 million, software sales will be much lower than they were in the past. If Nintendo doesn't make a profit on hardware, they can't afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don't expect big hardware profits in the foreseeable future. They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.

That's it, not trolling, but that is my reasoning.

To the 5% of you who ARE assholes, bring it on ;-)

If you talk about profits I would be more worried for Sony and Microsoft, especially Sony. But people don't care because they have a false sense than Sony and Microsoft are resourcing from other areas, and Nintendo don't.

 

[Rebel Leader]

3DS is doing fine overall.

If Nintendo recovered fine from Gamecube, they'll be fine from this debacle.

the gamecube?

You forget the virtual boy