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Nintendo slashes earnings forecast as Nintendo 3DS underperforms

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With less than a month to go before Nintendo unleashes the Wii U on a public with a contentious relationship with video game consoles, Nintendo had less than spectacular news for its shareholders. Despite promising momentum for the Nintendo 3DS consoles at the end of the June quarter, Nintendo’s performance from July to September was poor enough that it had to lower its projected earnings for the full fiscal year. Where Nintendo was previously expecting to bring in 20 bill yen in profits (just below $251 million), it’s now only expecting profits of 6 billion yen (just above $75 million.)

It isn’t all bad news. That Nintendo is expecting a return to profitability at the end of the fiscal year after reporting its first ever annual loss back in April should help its weary shareholders and employees feel more secure in the future of the company. There is more bad than good in these numbers though, especially since they come at the end of a quarter when Nintendo released a brand new entry in core series like New Super Mario Bros. and Pokémon. The system those games are meant to sell, the Nintendo 3DS, just isn’t selling in the numbers Nintendo needs it to.

Overall, Nintendo 3DS sales were up over the same period last year. From July to September, Nintendo sold more than 5 million 3DS systems, up from just over 3 million during the same period in 2011, bringing the console’s lifetime sales after 18 months to just over 22 million consoles. That places it roughly on par with where the Nintendo DS was sales wise at the same point in its lifecycle. In a period when Nintendo released not just New Super Mario Bros. 2, a sequel to one of the Nintendo’s bestselling games ever, but a new model with the Nintendo 3DS XL, Nintendo should have seen more growth for its handheld device. September Nintendo 3DS sales were down 18 percent in the US. Bad news.

Losses are narrowing, though, meaning that expected profit, no matter how slight, should still happen. Nintendo lost 28 billion yen (nearly $351 million) over the quarter compared to above 70 billion yen (nearly $881 million) during the same period last year. That means that Wii U production and Nintendo 3DS costs aren’t hitting the company as hard as they could, freeing up more capital for game development.

This is a transition period for Nintendo, not just from one console to another, but to new business types. This quarter also saw Nintendo embrace digital distribution for what would have been retail exclusive software. The fruit of that labor won’t ripen until 2013, but all the software sales in the world won’t help Nintendo if people don’t buy its machines in greater numbers.