Nintendo reports first annual loss while promising return to profitability with 3DS, Wii U

Nintendo reported its first ever annual loss on Thursday when presenting results for the 2012 fiscal year. The house of Mario reported a 43 billion yen loss, approximately $530 million. Total sales were down 36% from fiscal 2011, totaling 647 billion yen or just under $8 billion.

What happened? First, Nintendo’s consoles missed sales expectations by a huge margin. At the beginning of the fiscal year, Nintendo expected to sell 16 million Nintendo 3DS consoles, 13 million Wiis, and 11 million DS handhelds. The Nintendo 3DS fell well short, with just over 13.5 million devices sold, while the Wii and DS undersold with just under 10 million and a shocking 5 million sold respectively.

President Satoru Iwata said that the 3DS’ slow start at retail, in terms of both sales and software releases, contributed heavily to the company’s financial woes. It was a problem exacerbated by the company’s decision to drop the 3DS price in July 2011, forcing them to sell the hardware at a loss. During Thursday’s earnings report, Iwata promised that the 3DS would return to profitability in 2012. “[In] the first half of the fiscal term, we are now anticipating to get out of the situation that we sell the hardware below cost.” Software selection will also continue to improve according to Iwata. “We are now expecting a strong software lineup for the platform. There will be more and more highly-anticipated titles for Nintendo 3DS in the U.S. and Europe where home console game systems lead the market. We intend to release these various titles without any extreme interruptions.”

That last statement of course refers to Nintendo’s notorious habit of infrequently releasing games to rely on consistent sellers. It was a practice that helped the Nintendo DS thrive as titles like New Super Mario Bros. and Mario Kart DS, released respectively in 2006 and 2005, continue to sell well to this day. The Nintendo 3DS meanwhile is pumping titles out at a brisker pace to maintain general interest in the device. Nintendo will release New Super Mario Bros. 2 for 3DS in August, just nine months after Super Mario 3D Land.

The company is expecting a return to overall profitability by the end of the 2013 fiscal year. Of course, that depends largely on how the Wii U performs during the last three months of the fiscal year.

This is not the first time that Nintendo has reported an operating loss of any kind. The company reported its first ever quarterly operating loss back in November 2003, due to dire Gamecube sales and declining Gameboy Advance sales. It was immediately afterward in January 2004 that Nintendo announced that it would release a portable console with two screens. Investors, developers, and players alike balked even after the Nintendo DS debuted later that year, but that device went on to become the second best-selling gaming machine in history. Nintendo’s situation in 2012 though is very different. The Wii U is not a dramatically different device from what developers are used, not a potential industry changer like the DS was. Touch screens and tablet interfaces are old hat. Nintendo doesn’t need a new device but a revolution in how it sells its games.

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