Nintendo expects losses to balloon

Nintendo, the Japanese video game company, has warned that its first-ever net loss could be more than three times larger than it had previously forecast, owing to the yen’s persistent strength and poor sales of its latest game console.

On Thursday the once sure-footed creator of Super Mario games and the Wii console estimated its loss for the financial year to March at Y65bn ($800m), up from a forecast loss of Y20bn issued in October. Analysts surveyed by Bloomberg had been projecting a deficit of Y29bn.

Nintendo’s share price dropped by 56 per cent last year as it became clear that its new portable console, the 3DS, was winning fewer fans than it had hoped.

Disappointing sales hinted at a deeper, and for Nintendo, threatening market shift: casual gamers are abandoning specialised game hardware such as the Wii and the 3DS’s popular predecessor, the DS, in favour of playing on smartphones and tablets.

The games industry is suffering from a scarcity of new hardware hits and from competition including Apple’s iPhone and iPad, most of whose games can be downloaded at a fraction of the price of titles for specialised machines.

In the US, the world’s biggest gaming market, hardware, packaged software and accessory sales fell 21 per cent year on year in December to $4bn.

Nintendo, which has not reported an annual net loss since it began disclosing its consolidated earnings in 1981, now expects to fall into the red at the pre-tax operating level as well, with a forecast loss of Y45bn compared with an earlier projection for a Y1bn profit.

It cut its financial-year sales forecast for the 3DS, which was introduced last February and features a 3D screen, from 16m to 14m units. As well as lower than expected volumes of sales, Nintendo is making less money on each unit sold after it cut prices by as much as 40 per cent in September.

Nintendo will find it difficult to fall back on its hardware business. Its other mainstay offering, the Wii, a worldwide hit when it was introduced in 2006, is starting to look out of date. Wii sales were down 55 per cent in December compared with a year earlier, at 1.1m units.

Nintendo is hoping to revive the Wii brand with a radically redesigned version, the Wii U, which is expected to go on sale in the second half of this year. It showed off the machine, which features a controller with a touchscreen, at the annual Consumer Electronics Show in Las Vegas this month.

Meanwhile, the yen’s surge against the dollar and the euro has also hurt the group as well as other Japanese manufacturers.

The company said adverse foreign exchange shifts, which reduce the value of its overseas earnings in yen terms, cost Y53.7bn of operating profit in the first nine months of the financial year. Its nine-month net loss was Y48.4bn.