For First Time in Six Years, Nintendo's Profits Drop

Barry Levine, newsfactor.com Barry Levine, newsfactor.com – Tue May 4, 12:02 pm ET
Has Nintendo's ascendancy peaked? On Thursday, the video game maker will report earnings from the fiscal year that ended March 31, and it is expected to show the first drop in profits in six years.

The Wii's price drop before the last shopping season, from $250 to $200 in the U.S., helped boost overall sales, and there are new technologies coming out, but these weren't enough to boost the expected profit of $2.4 billion, or 229 billion yen -- a decrease over previous years.

Glassless 3-D

Weak sales earlier in the fiscal year, and a strong yen in addition to the price cuts, helped to reduce profitability. The console maker is expected to show sales of about 20 million Wii machines and 30 million DS machines during the fiscal year.

The Wii game console, with a motion-sensing controller and an emphasis on games that appeal to the entire family, has been a popular product that took competitors Microsoft and Sony by surprise, but now other innovations are expected to catch up with Nintendo.

With Sony releasing a new motion controller for its game console, and Microsoft about to release a controller that operates simply by motions of the player's hands and body, Nintendo is looking to find some competitive angle to prevent further slippage.

3-D gaming is one of the new innovations that Nintendo is trying out. A new portable model, currently called the 3-DS, is expected to be revealed at the big E3 show scheduled for Los Angeles in mid-June. Sales are expected to begin in the current Nintendo fiscal year.

Sony's PlayStation 3 and Microsoft's Xbox 360 are releasing 3-D games for their consoles that require special glasses, but Nintendo has said its handheld unit with 3D doesn't need glasses.

'State-of-Art' Becomes 'So What?'

Nintendo has not revealed the technology behind the glassless 3-D. According to news reports, the 3-DS will have backward compatibility with games for the Nintendo DS and DSi. The company has sold more than 125 million DS units since its launch six years ago, making it the most popular handheld game device.

Nintendo is also trying new bundling deals. Beginning May 9, the Wii Sports Resort game and MotionPlus controller will be included with new consoles, a $50 value provided at no addition cost. The new controller offers greater accuracy, and the console will be offered in a choice of black or white. Currently, the bundle is the Wii Remote controller, a Nunchuk controller, and Wii Sports.

Michael Gartenberg, partner and analyst with the Altimeter Group, said he didn't know if Nintendo's run has ended for the moment, but that their profit drop "shows has fast-moving this market is."

"What was 'state-of-the-art' can quickly become 'so what?'" he said. Nintendo is "looking to mobile and 3D to reignite the enthusiasm," Gartenberg noted, especially with the impending public introduction of Microsoft's hand-and-body controller, Project Natal, at the E3 show.

I am not suprised that Nintendo's profits are falling. I think that the novelty of having an interactive system helped drive its sales. In fact my family and I bought into that. I think that the problem is that there are really no good games for the Wii. In fact we have thought about getting rid of ours. Perhaps instead of trying to be the first to come out with new technology they should put some of that enthusiasm into making quality games for the consumers. Thats just my opinion. What do you guys think?