Thursday, July 28, 2011

Nintendo Cuts Profit Forecast and Price of Key Product

TOKYO — In a striking reversal of fortune for the world’s largest videogame maker, Nintendo drastically cut its annual profit outlook and said it would discount its new 3DS handheld device as it struggles to stem a flow of users to casual online games.

Nintendo said Thursday that it had tumbled to a loss of 25.5 billion yen for the three months to June 30, as sales plunged 50 percent from a year earlier. The loss prompted Nintendo to lower its annual profit forecast 82 percent to 20 billion yen ($257 million) for the year to March, down sharply from a previous estimate of 110 billion yen. The company also slashed its annual sales forecast by 18 percent to 900 billion yen.

Nintendo had been banking on the 3DS, its first major new gaming system since its wildly-popular Wii home console, to lock in a new generation of fans and bolster profits eroded by maturing sales. The handheld machine lets users play games that appear in 3-D, without the need for the clunky glasses that accompany most current 3-D technology.

But sales of the 3DS — which went on sale in February in Japan and in March in other parts of the world — have fallen short of expectations, hurt partly by the device’s unfortunate release date just before the devastating earthquake that struck Japan in March. The Kyoto-based company said it had sold just 710,000 units of the portable console in the three months to June, bringing the total number of units sold to 4.32 million. The company had said it was aiming to sell that many devices in just the first weeks following the product’s rollout.

The lackluster sales also reflect increasing competition for video game companies from new players that are redefining the industry. Apple has sold more than 200 million devices like the iPhone and iPad that let users choose from tens of thousands of games to download for a few dollars, or for free. Smartphones that run Google’s Android operating system also run simple, downloadable games. Casual games played within social networks like Facebook have taken off, too, as membership of those networks grows.

The new crop of casual games has added to the traditional rivalry between gaming systems developed by the videogames sector’s traditional top three: Nintendo, Sony and Microsoft. Nintendo has dominated the last generation of game consoles, selling over 146 million DS handheld game machines and 86 million Wii home consoles. Nintendo’s Japanese rival, Sony, is set to introduce a new portable game machine called the PlayStation Vita later this year, while Nintendo plans to sell a new home console in 2012.

But for now, players complain of a lack of game titles for the 3DS, a problem that plagues most new gaming systems. Nintendo said Thursday that two flagship titles for the 3DS — Super Mario 3D Land and Mario Kart — would go on sale in November and December, releases that are expected to improve sales of the device. But unless more consumers start buying the 3DS soon, third-party developers could be scared away from making games for the device, leading to a vicious cycle of fewer games released and fewer 3DS units sold.

Nintendo is hoping that a steep price cut will help kick-start sales. The 3DS will cost 15,000 yen in Japan from Aug. 11, down 40 percent from the original price of 25,000 yen, the company announced Thursday. In the United States, the price will drop the following day to $169.99 from $249.99. The company said that it expected the price cut to help it meet a previous sales forecast of 16 million 3DS machines by the end of March.

In a letter posted online, Satoru Iwata, Nintendo’s president and chief executive, offered a profuse apology to Nintendo users, saying that lowering prices so soon after a game machine’s release was a painful move.

“Never in Nintendo’s history have we lowered prices to such an extent, less than half a year since the product launch,” Mr. Iwata said. “But we have judged that unless we move decisively now, there is a high possibility that we will not see many of our customers enjoying a Nintendo 3DS.”

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