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Nintendo Annual Report 2017

ggx2ac

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Apr 5, 2016
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For the Financial Year ending March 31st, 2017.

A lot more at the link: https://www.nintendo.co.jp/ir/pdf/2017/annual1703e.pdf

- In 2017, Nintendo now employs 5166 people and 622 temporary employees. (Up from the previous year.)

- Nintendo spent $527 million on R&D for FY3/2017.

-QOL is still alive:

Moreover, we are working on the development of a new product that improves people’s QOL (Quality of Life) in enjoyable ways. Our aim is to enable consumers to make daily efforts to improve their QOL in a fun manner by making sleep and fatigue status visible and offering various services based on this information.

Nintendo's subsidiaries:

In the field of home entertainment, Nintendo Co., Ltd., its subsidiaries and associates (composed of 26 subsidiaries and five associates as of March 31, 2017), primarily engage in the development, manufacture and sale of entertainment products. Nintendo’s major products are categorized into computer-enhanced “dedicated video game platforms,” playing cards, Karuta and other products. “Dedicated video game platforms” are defined as hardware and software for the handheld systems and home consoles developed by Nintendo Co., Ltd. and its subsidiaries and
associates, manufactured by Nintendo Co., Ltd. and distributed primarily by Nintendo Co., Ltd. in Japan and by its subsidiaries and associates in overseas markets.
The positions of Nintendo Co., Ltd. and its main subsidiaries and associates are described below. Segment information is omitted as Nintendo operates as a single business segment.

- Development
Nintendo Co., Ltd., Nintendo Technology Development Inc., Nintendo Software Technology Corporation, Retro
Studios, Inc., Nintendo European Research and Development SAS, iQue (China) Ltd., ND CUBE Co., Ltd., 1-UP Studio Inc., MONOLITH SOFTWARE INC., Mario Club Co., Ltd.

- Manufacture
Nintendo Co., Ltd.

- Sale

Nintendo Co., Ltd., Nintendo of America Inc., Nintendo of Canada Ltd., Nintendo of Europe GmbH, Nintendo France S.A.R.L., Nintendo Benelux B.V., Nintendo Ibérica, S.A., Nintendo Australia Pty Limited, Nintendo RU LLC., Nintendo of Korea Co., Ltd., Nintendo (Hong Kong) Limited

- Other
Nintendo Network Services Inc.

In case people still doubted about whether Nintendo considers their mobile games a major revenue stream for them:

In accordance with our basic strategy, we will drive continual growth for Nintendo by expanding the dedicated video game business and establishing the smart device business. For our dedicated video game business, our unique hardware-software integrated business with focus on software will continue to constitute the core business for Nintendo and we will actively seek to invest resources in our Nintendo specific platform business.
In order to expand the scope of our business, we will seek to strengthen our business foundation, generate synergy with our dedicated video game business and maximize business for Nintendo as a whole by building our smart device business into one of our major pillars of profit.

In case there are people that still think that Nintendo would ever make a PS4 clone:

We will continue to flexibly transform ourselves by adapting to changing times while constantly valuing the spirit of originality based on the belief that the “true value of entertainment lies in its uniqueness” - and will endeavor to continue providing products and services that people will be surprised and delighted by.

Risk Factors:

3. Risk factors
Listed below are the various risks that could significantly affect Nintendo’s operating results, share price and financial condition. However, unpredictable risks may exist other than the risks set forth herein.
Note that matters pertaining to the future presented herein are determined by Nintendo as of the end of the fiscal year ended March 31, 2017.
(1) Risks around economic environment
• Fluctuation in foreign exchange rates
Nintendo distributes its products globally with overseas sales accounting for about 70% of its total sales. The majority of monetary transactions are made in local currencies. In order to reduce the influence of fluctuations
in foreign exchange rates, we have implemented measures such as increasing purchases in US dollars; however, it is difficult to eliminate the risks completely. In addition, the Company holds a substantial amount of assets in foreign currencies. Thus, fluctuations in foreign exchange rates have a strong influence not only
when accounts in foreign currencies are converted to Japanese yen but also when they are revaluated for financial reporting purposes.

(2) Risks around business activities
• Fluctuation of market environment and competition against other companies
Nintendo’s business is engaged in one segment of the broad entertainment field. However, its business can be affected by trends in other segments of the entertainment field. If consumer preferences shift to other forms of
entertainment, the video game market may shrink. The emergence of new competitors resulting from technological innovation could have a detrimental impact as well.
In the video game industry, it may become even more difficult to be profitable due to large investments required in research and development, and marketing. In addition, competition may intensify with large-scale
companies doing business in the same industry or in other segments of the entertainment field. As a result, Nintendo may experience difficulty in maintaining or expanding its market share as well as sustaining
profitability.

Furthermore, Nintendo may face rapid structural changes or the imposition of new laws and regulations and, if unable to adapt to such changes, be affected in terms of its business and performance.
• Development of new products
Although Nintendo continuously makes efforts to develop innovative and attractive products in the field of computer entertainment, the development process is complicated and includes many uncertainties. The various risks involved are as follows:
a. Despite the substantial costs and time needed for development of software for dedicated video game platforms and applications for smart device gaming services, there is no guarantee that all new products and services will be accepted by consumers due to ever shifting consumer preferences. Also, development of certain products may be suspended or aborted.
b. While development of hardware is time-consuming, with technology continuously advancing, the Company may not be able to equip technologies required for entertainment. Furthermore, delays of hardware launches could adversely affect market share.
c. Due to the nature of Nintendo products and services, it may become difficult to develop, sell or launch the products and services as planned and the original plan could differ to a large extent.

Product valuation and adequate inventory procurement
Products in the video game industry have relatively short life cycles, and are significantly impacted by consumers’ preferences as well as seasonality. Although production is projected based on the forecasted
equilibrium point of supply and demand, it is difficult to forecast demand accurately, which may lead to excess inventory. Obsolete inventory could have an adverse effect on Nintendo’s operations and financial
position.

• Dependency on outside manufacturers
Nintendo commissions a number of outside manufacturers to produce key components or assemble finished products. In the event one or more of these businesses fail, Nintendo may have difficulty procuring key components or manufacturing its products. In addition, suppliers may be unable to provide necessary
components on a timely basis. A shortage of key components could cause marginal decline due to higher costs, shortage of products and quality control issues. These issues may impair the relationship between Nintendo and its customers. Furthermore, as many suppliers’ production facilities are located overseas, potential production interruptions caused by societal violence, natural disasters or any other accidents in the area could negatively affect Nintendo’s operating performance.

• Business operations affected by seasonal fluctuation
A major portion of demand for Nintendo’s products is focused around the holiday season. Should Nintendo fail to release attractive new products or supply hardware during that period, it would suffer unfavorable operating performance.

• Unauthorized access to systems
Nintendo operates various Internet services, including the Internet-based competition games, download sales of digital software and service provision via Internet servers, in addition to providing information via the Internet. If a cyber-attack were launched against these systems resulting in the termination or destruction of the systems, or the leakage or unauthorized use of data, it could have an adverse effect on Nintendo’s future
operating results, share price and financial condition.
• Various factors affecting business activities
In addition to Japan, Nintendo engages in business in the United States, Europe, Australia, Asia and other areas in the world. Domestic and overseas business activities involve risks such as a) disadvantages from
emergence of political or economic factors, b) disadvantages from inconsistency of multilateral taxation systems and diversity of tax law interpretation, c) difficulty in recruiting and securing human resources, and
d) social disruption resulting from terror attacks, war and other catastrophic events.

Information about the Board of Directors which I did not include the audit or supervisory members.



 

ggx2ac

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Apr 5, 2016
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NERD was dissolved? They've been merged with NTD.

Significant matters forming the basis of preparing the consolidated financial statements
1. Scope of consolidation
(1) Number of consolidated subsidiaries: 25 companies
The names of significant consolidated subsidiaries are omitted because they are provided in “I. Overview of the Company, 3. Subsidiaries and associates.”
NERD Inc., a former consolidated subsidiary, was excluded from the scope of consolidation from the consolidated fiscal year ended March 31, 2017, since said company was dissolved due to the absorption-type merger with Nintendo Technology Development Inc., the surviving entity.
(2) The unconsolidated subsidiary is as follows:
Fukuei Co., Ltd.
The above is unconsolidated because it is a small-scale company and does not have a material impact on the consolidated financial statements with respect to total assets, net sales, profit or loss, retained earnings, etc.

Edit: Checking their subsidiaries again, that does seem to be the case.

Edit:

This clears things up, thanks Shiggy.

Actually you just helped clearing this up.

Last year: Number of consolidated subsidiaries: 26 companies
This year: Number of consolidated subsidiaries: 25 companies

Last year: Number of consolidated subsidiaries not listed: 6 companies
This year: Number of consolidated subsidiaries not listed: 5 companies
(NERD SAS was a listed consolidated subsidiary in both years, NERD Inc. was not listed)

NERD Inc. and NERD SAS are indeed different companies. NERD SAS is still a consolidated entity this fiscal year, NERD Inc. isn't as they have been merged with NTD.
 

ggx2ac

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Apr 5, 2016
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Finished looking over the report.

Isn't NERD from Europe and NTD in America?

Yes, I'm assuming Nintendo are having NTD deal with the supervision of NERD now instead of whoever did before at NCL.

All an assumption, I haven't bothered to check.
 

ASaiyan

Banned
Aug 16, 2012
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Oooh. As a gamer and a business student, these 10ks are my bread and butter. Definitely going to be reading through this; probably night-and-day compared to the last one I read through in 2014 for a finance project.
 

ggx2ac

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Apr 5, 2016
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Actually, what's with NERD SAS in the Development part of Nintendo's Subsidiaries?

I don't know but that would be the same thing for iQue as well, they still list that but I'm certain I remember that iQue got absorbed by Nintendo Hong Kong.
 

Steiner

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Sep 17, 2016
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Does that R&D expenditure seem a little crazy considering the Switch has launched? Does R&D encompass software development? I'm assuming QOL has a little to do with it as well.

Can anyone enlighten me?
 

Shiggy

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NERD Inc. should be the same as Nintendo European Research and Development SAS. The "Inc." looks to be a mistake.
 

JonnyDBrit

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Does that R&D expenditure seem a little crazy considering the Switch has launched? Does R&D encompass software development? I'm assuming QOL has a little to do with it as well.

Can anyone enlighten me?

It's for the fiscal year that ended on March 31st. So from the report's perspective, the Switch was only out for a month, and the other 11 were concerned with getting it ready for launch.
 

Steiner

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Sep 17, 2016
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It's for the fiscal year that ended on March 31st. So from the report's perspective, the Switch was only out for a month, and the other 11 were concerned with getting it ready for launch.

Sorry dude, I just woke up. At the top I read "Q3" and assumed Q3 of this fiscal year. Everything was wrong about the way I read and perceived that. I'll get some coffee here in a sec. 😩
 

ggx2ac

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Apr 5, 2016
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What's interesting I've noticed is that iQue has a different role now.

In the previous year they were listed as a Sales subsidiary, this year they are now listed as a Development subsidiary.

Last year their business transactions were described as "Purchasing parts from the Company and entrusted license of manufacturing and sale"

Now it says, "Entrusted development
of software"

Which is probably related to how there are Nintendo games appearing on the Nvidia Shield TV officially for sale in China which includes NSMB Wii and Zelda Twilight Princess if I remember correctly.

Does that R&D expenditure seem a little crazy considering the Switch has launched? Does R&D encompass software development? I'm assuming QOL has a little to do with it as well.

Can anyone enlighten me?

If you check Research and Development activities in the report, they seem to list software as R&D as well for their games, eShop and mobile games.
 

beril

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Aug 25, 2010
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Does that R&D expenditure seem a little crazy considering the Switch has launched? Does R&D encompass software development? I'm assuming QOL has a little to do with it as well.

Can anyone enlighten me?

They still have to make games for it. Somehow people always assume that R&D means hardware only for some reason. It's called Research and Development. Nintendos dev teams even used to be called R&D1, R&D2, R&D4 etc before becoming EAD and now EPD (which means basically the same thing)
 

Nitpicker_Red

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Jul 28, 2016
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NERD was dissolved? They've been merged with NTD.
Edit: Checking their subsidiaries again, that does seem to be the case.

Aw, NERD was such a cool name for a "Nintendo European Research & Development", and it even got some public recognition as a "sub-brand" for some people I think, because it was involved in the NES classic's emulator. Edit: and the "Super Stable 3D" for the New 3DS is them too.
Nothing on the site yet.
 

GregLombardi

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I think next year's annual report will be approximately 100x the value of this one, in terms of seeing how Nintendo is doing overall.
 

ggx2ac

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Apr 5, 2016
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NERD Inc. should be the same as Nintendo European Research and Development SAS. The "Inc." looks to be a mistake.

This is confusing because I've checked the previous two years and there is no NERD Inc.

This year it lists a NERD Inc. which should be in reference to Nintendo European Research and Development SAS but, the latter is still listed in the consolidated subsidiaries... Very confusing.
 

Shiggy

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This is confusing because I've checked the previous two years and there is no NERD Inc.

This year it lists a NERD Inc. which should be in reference to Nintendo European Research and Development SAS but, the latter is still listed in the consolidated subsidiaries... Very confusing.

Actually you just helped clearing this up.

Last year: Number of consolidated subsidiaries: 26 companies
This year: Number of consolidated subsidiaries: 25 companies

Last year: Number of consolidated subsidiaries not listed: 6 companies
This year: Number of consolidated subsidiaries not listed: 5 companies
(NERD SAS was a listed consolidated subsidiary in both years, NERD Inc. was not listed)

NERD Inc. and NERD SAS are indeed different companies. NERD SAS is still a consolidated entity this fiscal year, NERD Inc. isn't as they have been merged with NTD.
 

Effect

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Jun 15, 2007
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Hadn't realized Nintendo owned ND Cube. I thought they were just were just a secondary party developer that did work for them.
 

ggx2ac

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Actually you just helped clearing this up.

Last year: Number of consolidated subsidiaries: 26 companies
This year: Number of consolidated subsidiaries: 25 companies

Last year: Number of consolidated subsidiaries not listed: 6 companies
This year: Number of consolidated subsidiaries not listed: 5 companies
(NERD SAS was a listed consolidated subsidiary in both years, NERD Inc. was not listed)

NERD Inc. and NERD SAS are indeed different companies. NERD SAS is still a consolidated entity this fiscal year, NERD Inc. isn't as they have been merged with NTD.

The only thing I am confused about now is that there were two of them and one is merged into NTD and I have no clue if they even do similar things.

lol

Edit: I mean to say, I wonder what was different in operations for NERD SAS compared to NERD Inc. I'll have to check later to see if I find something.
 

James Scott

Banned
May 24, 2014
11,386
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What's interesting I've noticed is that iQue has a different role now.

In the previous year they were listed as a Sales subsidiary, this year they are now listed as a Development subsidiary.

Last year their business transactions were described as "Purchasing parts from the Company and entrusted license of manufacturing and sale"

Now it says, "Entrusted development
of software"

Which is probably related to how there are Nintendo games appearing on the Nvidia Shield officially for sale in China which includes NSMB Wii and Zelda Twilight Princess if I remember correctly.



If
you check Research and Development activities in the report, they seem to list software as R&D as well for their games, eShop and mobile games.
Wonder what will come out of that.
We haven't seen it and supporting the NVIDA Shield with their two biggest IPs even if old Wii releases seem...unwise?

Also, theoretically, would it be possible to run these games on an Android tablet?
 

ggx2ac

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Wonder what will come out of that.
We haven't seen it and supporting the NVIDA Shield with their two biggest IPs even if old Wii releases seem...unwise?

Also, theoretically, would it be possible to run these games on an Android tablet?

I should have clarified, I meant Nvidia Shield TV.
 

ggx2ac

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In the subsidiaries section I. 3.

If I am reading this correctly, NST has $20,000 in Capital Stock/Investments in Capital.

And... NTD has $1 in Capital Stock/Investments in Capital.

Comparing this to NoA which has $110 million in Capital Stock/Investments in Capital.

I know NoA is more to do with Sales so how about Retro?

Retro has $10 million in Capital Stock/Investments in Capital.

If you look through the consolidated subsidiaries, you'll see why I am finding it to be an odd observation of what NTD and NST has in Capital Stock.
 
Jul 28, 2014
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What's interesting I've noticed is that iQue has a different role now.

In the previous year they were listed as a Sales subsidiary, this year they are now listed as a Development subsidiary.

Well I'll be. You think this is the start of a larger Chinese market initiative?
 

aeolustl

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Nintendo (Hong Kong) takes care of the promotions in both Hong Kong and Taiwan. It has its own FB page
 

Terrell

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I've been thinking for some time now that Nintendo has intended a shake-up of its Asian business.

With the closing of Nintendo's Taiwanese distributor and those duties falling to the Hong Kong subsidiary in 2014, I think it's a safe assumption that Nintendo will try to enter the Chinese-speaking market in a big way with Switch. This is coupled with Kimishima's mass layoffs at Nintendo of Korea in 2016, realizing that it being a fully-staffed subsidiary to enter the South Korean market did not pan out as anticipated.

GameMeca reported that Nintendo president Tatsumi Kimishima made this decision after conducting a review of the company's branches around the world.

So I have my suspicions that Nintendo, under Kimishima's direction, is going to funnel a fair amount of time and money into building up the Hong Kong subsidiary for when Switch launches officially in China and Taiwan and will take some time to rethink their strategy for the Korean market. This re-positioning of iQue from sales to development only furthers that suspicion.
 

ggx2ac

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I'll say this, it's funny that I'm only finding articles talking about QOL still being around due to the Annual Report but no talk of iQue now becoming a development subsidiary when it was a sales subsidiary back then, or NERD Inc. having been absorbed by NTD.

https://www.gamespot.com/articles/nintendos-quality-of-life-device-is-still-in-devel/1100-6451697/

http://www.cinemablend.com/games/1681269/where-nintendos-quality-of-life-product-currently-stands

http://comicbook.com/gaming/2017/07/15/nintendo-quality-of-life-sleep-machine-still-happening/

Oh well, I guess they can't make much news of iQue or NERD Inc. without going into speculation but that's technically the same thing with QoL being something that has never been revealed with a working product.
 

ggx2ac

Member
Apr 5, 2016
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I've been thinking for some time now that Nintendo has intended a shake-up of its Asian business.

With the closing of Nintendo's Taiwanese distributor and those duties falling to the Hong Kong subsidiary in 2014, I think it's a safe assumption that Nintendo will try to enter the Chinese-speaking market in a big way with Switch. This is coupled with Kimishima's mass layoffs at Nintendo of Korea in 2016, realizing that it being a fully-staffed subsidiary to enter the South Korean market did not pan out as anticipated.



So I have my suspicions that Nintendo, under Kimishima's direction, is going to funnel a fair amount of time and money into building up the Hong Kong subsidiary for when Switch launches officially in China and Taiwan and will take some time to rethink their strategy for the Korean market. This re-positioning of iQue from sales to development only furthers that suspicion.

I guess we can continue this conversation now. Switch is releasing in South Korea and Taiwan in December 1st despite the South Korean branch being heavily downsized and as you mention, the Hong Kong branch taking care of the distribution duties for Taiwan.

I wonder what this will mean for other parts of Asia, assuming Nintendo decides to go for more.
 

Yoshimitsu126

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Jun 18, 2016
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Oh my god QoL is still alive. What can it even be at this point.

I also find it amazing that Nintendo is trying to create entertaining software and merchandise based on their IP and also trying to enter a market that makes their customer sleep well too.
 

massoluk

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Dec 19, 2011
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After all, Nintendo only made Wii Sport, Wii Fit, Wii Balance Board, Poke Walk, what the hell do they know about making fun QoL products.
 

qko

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Sep 26, 2012
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490
Oh my god QoL is still alive. What can it even be at this point.

I also find it amazing that Nintendo is trying to create entertaining software and merchandise based on their IP and also trying to enter a market that makes their customer sleep well too.

Pleasant updates and pleasant dreams...