Japanese game giant Nintendo’s financial fears were proven correct when the official results for the six months to September 30 were released. Nintendo has seen a massive drop in sales revenue, causing financial losses to rise by a factor of 35. Nintendo now forecasts an annual loss for the first time in its history in the videogame business.
Nintendo’s financial reports show that the company's six-monthly net sales revenue fell 40.6 per cent year on year to ¥215.7 billion (£1.78 billion), a drop of ¥147.4 billion (£1.2 billion) that naturally hit its bottom line hard – putting Nintendo in a very deep red hole. This time last year net loss was a slight ¥2.01 billion (£16.6 million). This year that has increased by a factor of almost 35, to a staggering ¥70.3 billion (£579.8 million).
Almost two thirds of that came in the last three months - Nintendo's loss at the end of the first fiscal quarter of the year was ¥25.5 billion - which may go some way to showing the impact on Nintendo's finances of making a loss on hardware sales following the global 3DS price drop in August.
The results are even worse than those reported by Nikkei yesterday. It claimed Nintendo would report a pre-tax loss of ¥100 billion (£821 million); in fact the company's losses before income tax totaled ¥107.9 billion (£890.16 million).
Nintendo's balance sheet shows that its woes are almost entirely down to falling sales. Despite the impending launch of Wii U, R&D costs were broadly consistent with last year's, rising just 1.8 per cent. Similarly, its renewed efforts in marketing 3DS have had no impact; with its advertising expenditure actually falling 9.1 by per cent year on year. Exchange rate fluctuations, which are hitting Japanese companies across the board due to the strength of the yen, caused losses of ¥52.4 billion (£432.4 million).
The biggest drop in sales came from the United States, where revenue fell by ¥85.9 billion (£708.9 million). This is a drop of 53.8 per cent that accounts for 58 per cent of the overall drop in revenue. In Japan, sales fell by 33.7 per cent; in Europe, 25.7 per cent, and in other territories, 39.9 per cent.
Sales of 3DS hardware, at least, are going in the right direction. In the first quarter of the year Nintendo sold just 710,000 units of its new handheld; in the three months to September 30 it sold 2.36 million systems. Worldwide, lifetime 3DS sales now total 6.68 million.
It's depressing stuff, and will have made for nervous reading for Satoru Iwata. The company president asked investors to give him four months to turn things around following the announcement of the 3DS price drop and the lukewarm reaction to the unveiling of Wii U at E3 in June, which caused Nintendo's share price to fall 5.7 per cent in a single day.
Nintendo's prospects of reducing losses to that ¥20 billion target rest on its predictions of a Christmas rush on 3DS driven by two titles starring its talisman, Super Mario 3D Land and Mario Kart 7. Iwata, more than most, will hope those forecasts are proven right.