Nintendo Earnings: Nintendo 3DS gains strength, but company is fragile ahead of Wii U launch

The road to recovery after a life-threatening injury is long and arduous, so it’s no surprise that Nintendo is still picking itself back up off the ground. The Super Mario maker is still reeling from the end of its fiscal year in March, when it reported its first ever annual loss. Nintendo reported earnings for the April to June quarter on Wednesday, narrowing losses year on year, but the company’s future in relying on Nintendo 3DS and Wii U sales remains dim.

The company saw a net loss of over $220 million for the period, an improvement over the same $326 million loss the company reported during the same period in 2011.

The catastrophic launch of the Nintendo 3DS handheld during the first half of 2011 was the cause of last year’s losses, and it’s promising to see that the handheld was responsible for Nintendo’s gains in 2012. Where the company sold just 710,000 Nintendo 3DSs in the 2011 June quarter, it sold nearly 1.9 million this year, with healthy software sales of 7.4 million. During this period though, Nintendo was still selling each 3DS console at a loss, but it promised that as of Wednesday, the device will no longer be sold below manufacturing costs. With major titles on the horizon like New Super Mario Bros. 2—whose predecessor has sold nearly 30 million copies over the past 6 years—the Nintendo 3DS has the potential to finally be an earning machine for Nintendo, albeit one far less powerful than its predecessor.

Speaking of that predecessor, the Nintendo DS continued to decline over the quarter. Nintendo sold just 540,000 DSs, a decline of more than 62 percent from the 1.4 million DSs sold during the same period last year. After 8 years, the Nintendo DS is still selling, but it’s reign as video game hardware market leader is finally over.

The Wii plummeted as well, with 710,000 consoles sold between April and June, down from nearly 1.6 million last year. That the console is still selling in the hundreds of thousands each month is impressive considering the relative age of the technology. It simply isn’t keeping Nintendo flush with cash like it was even two years ago, even with more than 8.4 million in software sales over the period.

Nintendo is at a critical juncture. It is recovering from the losses of the past 18 months, but it’s still fragile. The Nintendo 3DS may be selling above manufacturing cost and those sales will be maintained by new games, but the Wii U doesn’t have the luxury of lowered manufacturing costs. Nintendo is releasing its new home console into a stagnant market and it will need to price the device low to compete with the PlayStation 3 and Xbox 360. Pricing the device low will of course hurt Nintendo on manufacturing costs though. If the device is a phenomenon like its predecessor, Nintendo should continue this recovery into 2013. That’s a big if though.

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