Nintendo has peered into its future, and the picture isn't pretty.
The game maker, whose consoles and colourful Mario and Donkey Kong characters once helped the company climb to the top of the video game world, stunned investors on Friday by sharply lowering its financial forecasts. The dire news was the latest indication that Nintendo wildly misjudged the gamers' shift to mobile devices, a miscalculation that could force the company to change course.
Nintendo said it now expected to sell nearly 70 per cent fewer of its new consoles, the Wii U, than expected. The company had hoped new games would swell demand for the year-old console over the recent holiday season.
That demand never materialised, and the company said even its portable 3DS game system, which has been relatively popular, missed forecasts as well. Instead of an annual profit of $527 million, Nintendo plans to report a net loss of $240 million.
There have been growing signs throughout the last year that Nintendo has lost a step to bigger game competitors, like Sony and Microsoft, and more enticing devices made by the mobile industry. But the numbers released Friday laid bare for the first time the extent of the damage.
"This is one of the most surprising pre-announcements we've seen in the industry," said Evan Wilson, an analyst at Pacific Crest Securities. "Not in terms of the Wii U not doing well, but the magnitude by which they had to revise their forecast."
Many companies have struggled with technology changes in the games business, but Nintendo is the most prominent casualty. In a sign of the seriousness of its predicament, Nintendo's president said the company might have to make bold changes to adapt to the mobile devices that have shaken up Nintendo's business, perhaps by releasing its games and characters in some form on those devices.
Throughout its decades in the games business, Nintendo has been highly protective of its iconic stable of characters and game franchises, releasing games only for its line of hardware devices.
At a news conference in Osaka, Japan, Satoru Iwata, the president, said Nintendo was considering a "new business structure," according to Bloomberg News.
"Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business," Mr. Iwata said, according to Bloomberg. "It's not as simple as enabling Mario to move on a smartphone."
The company said on Friday that it now expects to sell 2.8 million Wii U consoles for its fiscal year, which ends March 31, not the nine million it previously said it would sell. Its earlier forecast was widely considered unrealistic by analysts, though they were caught off guard by how badly Nintendo missed its mark. The company's American depositary shares fell 17 percent on Friday.
Sales of Nintendo's portable game players began to sink several years ago, just as the adoption of smartphones started rising. Later, the growth of the iPad and other tablets put more pressure on Nintendo's portable and Wii console systems. There are hundreds of thousands of games for mobile devices, many of them free to play, and some are enormously popular, like Candy Crush and Clash of Clans.
"Would you rather buy your kid a 3DS or Kindle?" asked Michael Pachter, an analyst at Wedbush Securities, referring to the Amazon tablet that can play mobile game apps. "Nintendo is a victim of something way beyond their control."
With its own hardware sales faltering, analysts have proposed that Nintendo forcefully embrace mobile devices by making full versions of its popular game franchises for iPhones, iPads and Android products. Mr. Pachter, for one, says he believes they could release older games for mobile while making the latest Nintendo games for its own devices. If it does not, Nintendo could risk the declining relevance of its characters as players gravitate to newer mobile-only game franchises.
Nintendo, though, has dismissed such calls in the past. The company has been a firm believer that designing its own hardware and software results in the best products, much as Apple has in its own business. The strategy clicked for the company when it introduced its Wii console a little over seven years ago, using its games to show off the machine's innovative motion-sensing controller.
"Our response is, 'No thank you,' " Reggie Fils-Aime, the president of Nintendo's American division, said in an interview last month. "We will make that content and put it on our devices."
Mr. Iwata did not make it clear on Friday whether the changes Nintendo is instituting amount to a deviation from its past position.
Mr. Pachter said he thought Nintendo had more modest plans, like using mobile apps to promote games for its own devices. A Nintendo spokesman declined to comment.
Nintendo said sales of its 3DS portable game player would be closer than the predictions for the Wii U console, but the numbers will still be far off. The company now expects to sell 13.5 million 3DS systems, 25 percent fewer than the previous forecast. While sales of the 3DS have improved since its release, Nintendo now sells around half the number of portable game players it did five years ago.
The company revised its sales forecasts for the year to $5.65 billion, down from its original projection of $8.82 billion.
Nintendo's performance is in sharp contrast to the strong holiday season of its two chief rivals, Microsoft and Sony, which sold millions of their recently released consoles in the last two months of the year. Those systems are mostly being snapped up by hard-core gamers, rather than the more casual game-playing audience that Nintendo has courted in recent years. Sony and Microsoft, too, could face challenges as they reposition their system for a mainstream audience in the next year or two.
Nintendo has recovered from slumps before and in late September it reported having more than $8 billion in cash and short-term investments, giving it a large cushion.
Greg Richardson, a longtime industry executive, said he remained optimistic about Nintendo's long-term prospects. But Mr. Richardson, now the chief executive of Rumble, an online games company, said he hoped Nintendo recognized the need to make big changes. "It's a classic challenge of having to disrupt yourself. They have to fail against their old playbook fundamentally before they take a step back to assess, 'Who are we?' Clearly, the present is not the past."
© 2014 The New York Times News Service
