Topic: Nintendo Increases Expected Losses for the 2011 Fiscal Year

[Luigi Dude]

This period is very challenging for Nintendo because their new handheld is underperforming, meaning they don't have the cushion that the GBA gave the GC launch, and the DS gave the Wii launch.

Ever since the price drop, the 3DS has been selling better then the GBA and DS were doing at this point in their lifespans.  The only problem is they're selling the system at a loss right now because of the price drop, so they're aren't profiting off the hardware like they did with the other handhelds.  Once 3DS cost go down and they start profiting off the hardware again they'll be printing money again.

[Adrock]

Nintendo isn't selling 3DS at a loss.

[Chozo Ghost]

Nintendo isn't selling 3DS at a loss.

They were selling it at $100 markup before the $80 price drop, so one would think there should still be a $20 markup on it.

[Kairon]

Loss or no, they're not making that extra money they were counting on, and Iwata didn't sound particularly rosy when talking about how they might rebuild that hardware profit margin in the next year. Actually, I'm concerned that 3ds software isn't moving very well right now. Mario and Mario Kart are gangbusters, but maybe 3DS owners just haven't reached critical buying mass yet.

[Luigi Dude]

Nintendo isn't selling 3DS at a loss.

http://www.nintendo.co.jp/ir/en/library/events/110729/index.html

On the other hand, a drastic markdown like this, before the mass-production effect can take place for the hardware, will naturally generate red ink on the hardware sales. As a result, a significant minus effect is expected on the profitability of the current fiscal year. Even though we understand this, for us to elevate Nintendo 3DS to be the platform that can sustain our business, we have concluded that we need to take the best possible measure we can take now, even at the cost of short-term profitability.

Considering Red Ink in the business world mean losing money and this is a financial briefing to investors, they are losing money off the 3DS after the price drop.  Plus Iwata recently confirmed it's still being sold at a lose as well.


http://www.nintendo.co.jp/ir/en/library/events/120127qa/index.html

It is clear that, however, in the next fiscal year, the sales of Nintendo 3DS hardware will not give us much profit even if we will be able to cease selling it below cost. It means that we need to make it with the software sales. There are two methods to gain profits from software: one is to sell as many units of a product as possible with fixed development and marketing costs; the other is to get as much money from a product as possible, or to increase the ARPU you mentioned.

[Chozo Ghost]

Nintendo may introduce an "XL" revision of the 3DS with a larger screen and integrated CPP and so on which they can then justifiably bump up the price on to let's say $199.99 or so. They did this before with the DSi which was sold at a higher MSRP than the DS. Both models can be sold along side each other, but the XL model with its higher MSRP might be profitable, while the low end basic 3DS might continue in the red. This way Nintendo could have the best of both worlds, because the low end model would sell well to people who don't care about the extras, while the improved model could help offset the loss.

[Adrock]

Fair enough. I have my doubts that 3DS is sold at a loss since most estimates have the total cost of components at around $100 and I'm having a hard time believing that the cost of labor and factories (especially at Foxconn), marketing etc. spread evenly across millions of units is more than $80 per unit. I suppose it depends on how one breaks down the numbers. Take something like research and development. Is it recouped $X for the first Y million units or $Y for the first X amount of units?

Is Iwata flat-out lying to investors? No, probably not but considering investors don't really know the ins and outs of a company they invest in (these being the same investors who want Nintendo to cannibalize their own bottom line by developing for iOS), he can certainly stretch the truth in such a way that appeases their worries.