Nintendo Gamecube

Nintendo Hit by Weak GameCube Sales, DS Price Cuts

Yumie Horie, Reuters

OSAKA (Reuters)—Japan's Nintendo Co. Ltd. cut its first-half operating profit estimate by one third on Friday due to sluggish sales of its GameCube game console and software in the United States, but boosted its net profit estimates due to currency-related gains.

The Kyoto-based company, known for software titles featuring characters such as Mario, Donkey Kong and Pokemon, also cited price cuts to its "DS" portable game machine and high development costs for a new game system as factors weighing on its earnings.

Nintendo said it now expected to book a group operating profit of 20 billion yen for the six months ended September 30, compared to its prior estimate of 30 billion yen.

It lowered its first-half sales estimate by 8 percent to 175 billion yen.

Yoshihiro Mori, senior managing director at Nintendo , said the biggest negative factor was sluggish sales of software for the GameCube as third-party developers had focused on making games for its next-generation console due next year.

"The big drop for GameCube games was in North America. It looks like the product's (GameCube) life is nearing its end," Mori told a news conference in Osaka, western Japan.

Following the sluggish first-half performance, the game maker slashed its forecast for operating profit in the full year to next March by 22 percent to 90 billion yen and cut its sales forecast by about 4 percent to 500 billion yen.

That means it now sees operating profit falling nearly 20 percent and sales down 3 percent this business year.

Margins have also been pinched by hefty development costs for its next-generation "Revolution" console, Mori said. Revolution will hit stores next year and compete with Microsoft Corp.'s Xbox 360, which will launch next month, and Sony Corp.'s PlayStation 3, due for launch next spring.

Mori also blamed the weak operating performance on price cuts to the DS. In August, Nintendo cut the price to $129 from $149 in the United States and this month lowered the price in Europe to 129 euros from 149 euros.

On a positive note, Nintendo said it now expected first-half net profit of 36 billion yen instead of the previously forecast 19 billion yen due to a revaluation of its dollar-denominated assets, although the new figure would still be down 23 percent year-on-year.

Nintendo is particularly affected by dollar-yen fluctuations because it holds about $4.7 billion of dollar-denominated deposits, which it revalues every year.

The latest revision stems from a change in its assumed exchange rate of 107 yen to the dollar. Instead, it used the rate at the end of September of 113.19 yen to calculate profits for the April-September first half. It now assumes a yen rate of 110 yen for the full year to March 2006.

Mori said Nintendo would book a foreign-exchange gain of about 24 billion yen for the first half.

Nintendo maintained its full-year net profit forecast of 75 billion yen, which is below the consensus estimate of 76.85 billion yen by 19 analysts polled by Reuters Estimates.

Responding to requests from shareholders, Nintendo also said it had changed its dividend policy to base its payout on either 50 percent of group net profit or 33 percent of group operating profit, whichever ends up larger.

Previously, Nintendo had said it would base its dividend payout on 33 percent of operating profit. Nintendo said it would maintain its initial plan to pay a 70 yen per share dividend for the first half.

(Additional reporting by Yuko Inoue)

Copyright © 2005 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in PC Magazine.

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