Nintendo President and CEO Satoru Iwata has followed up with an explanation of the recent damaging full-year financial forecast and dividend forecast reductions.
Nintendo 3DS in the East
While the Nintendo 3DS has had an exceptional year, given it’s performance during prior years, it wasn’t enough to meet Nintendo’s economic goals, goals Nintendo admits were high achieving considering the record set by previously released systems such as the Nintendo DS and Game Boy.
Satoru Iwata: “Nintendo 3DS continued to show strong sales in the Japanese market. The unit sales for Nintendo 3DS in the previous calendar year amounted to approximately 4.9 million units, falling short of our aim of five million units by a small margin. However, as I explained before, given that every gaming device from the year 2000 onwards apart from Nintendo DS and Nintendo 3DS did not reach sales of four million units even in their peak years, we can say that the sales figure for Nintendo 3DS in the last calendar year was indeed very high.”
Nintendo 3DS in the West
Outside of Japan, while Nintendo says its market share has increased through continued releases of top-tier games throughout the year, it’s a different story for the handheld, as Nintendo 3DS did not meet sales targets in the overseas markets, and they were ultimately unable to achieve their goal of providing a massive sales boost to Nintendo 3DS in the year-end 2013 sales season. France was the only region Nintendo were able to meet their sales goals in.
Satoru Iwata: “Using the U.S. market as an example, Nintendo 3DS became the top-selling platform in the last calendar year, according to NPD, an independent market research company, with its cumulative sales exceeding 11.5 million units; however, the estimated annual sales of the Nintendo 3DS hardware remain significantly lower than our initial forecast at the beginning of the fiscal year. In Europe, while the individual markets showed different results, France was the only market in which we experienced relatively strong sales, and we failed to attain our initial sales levels by a large margin in other countries.”
Wii U in the West
If we were to disregard the months prior to the year-end 2013 sales season, where various top-tier games were released from Summer onwards, new hardware bundles were launched at affordable price points, and where Wii U’s price dropped in the U.S. and European markets, one could say that Wii U has performed well this year. However, this is not how we look at things. Unfortunately, thanks to a combination of many factors, sales of the Wii U system have fallen short of Nintendo’s targeted recovery by a large margin.
Satoru Iwata: “In particular, sales in the U.S. and European markets in which we entered the year-end sales season with a hardware markdown were significantly lower than our original forecasts, with both hardware and software sales experiencing a huge gap from their targets. In addition, we did not assume at the beginning of the fiscal year that we would perform a markdown for the Wii U hardware in the U.S. and European markets. This was also one of the reasons for lower sales and profit estimates.”
Fluctuating Currency Rates
Nintendo typically relies on the yen to minimize the impact of costs incurred during it’s business, but as the yen has become weaker, so do the efforts of this strategy.
Satoru Iwata: “Also, yen appreciation against the U.S. dollar and euro, which on one hand affects dollar-based and euro-based sales positively, also increases costs incurred in foreign currencies when they are converted to Japanese yen. While the yen remained very strong for a sustained period of time, Nintendo made a concerted effort to pay more of its manufacturing costs in U.S. dollars in order to minimize its impact. However, as the era of the exceedingly strong yen concluded, our domestic business, which had been progressing at a relatively strong pace, has seen an increase in manufacturing costs, while our overseas business, which is yet to reach its full potential, has not fully benefited from the weaker yen yet. In terms of our profitability in the current fiscal year, therefore, we were unable to sufficiently take advantage of the weaker yen.”
Increased Promotional and Research & Development Efforts
As Nintendo finally begins to increase their promotional and development efforts, with new advertisement campaigns being initiated and new developmental structures being established among other things, so do their expenses.
Satoru Iwata: “As for advertising expenses, and research and development expense forecasts, we made revisions to increase them by eight billion yen and 15 billion yen respectively from their forecasts made at the beginning of this fiscal year. We expect advertising expenses to increase due to the effect of the expenses incurred in foreign currencies to be converted into Japanese yen by using weaker yen rates. The estimated increase of research and development expenses is based on reflecting our ongoing enhancement of the development structure, and new research and development activities. These increases contributed to lowered estimated profit forecasts.”
You can read Nintendo’s explanation of the financial forecast and dividends revision in full here.