Japanese video game-maker Nintendo has reported a 37% fall in net profit for the past business year and forecasts a further profit drop ahead, blaming slack sales of its flagship GameCube console.
Group net profit for the year ended 31 March dipped to 67.27 billion yen ($572 million) while sales dropped 9% to 504 billion yen despite upbeat sales of its new "Pokemon" games.
Facing stiff competition from rival Sony`s PlayStation 2and Microsoft`s Xbox, sales of the GameCube system achieved less than half the firm`s target.
"New titles in our key franchises have failed to help bolster demand for the GameCube console and we also had a disappointing Christmas season because of an aggressive promotion by rival makers," senior managing director Yoshihiro Mori told reporters.
In a bid to increase GameCube users, Nintendo released new titles in its hit "The Legend of Zelda", "Mario" and "Metroid Prime" series in 2002/03, but sales all fell short of target.
For the year ahead, Nintendo forecast net profit down another 3% to 65 billion yen, below analyst estimates of 95 billion yen, on sales of 550 billion yen, up 9%.
Nintendo`s once-dominant position in the console business has been hacked away by rival Sony, whose PlayStation 2 occupies more than five times as many homes as the GameCube.
Nintendo now faces a formidable challenge on handheld devices, its key earnings driver, after Sony unveiled plans last week to launch its own device by the end of 2004. Nintendo`s shares have shed about 12% since Sony`s announcement.
"The competitive element is clearly heating up," said Marc Desmidt, director of the Japanese equity team at Merrill Lynch Investment Management.
"Nintendo has to set a clear strategy and define whether it wants to be a hardware and a software provider or whether it wants to just sort of focus on the software side of gaming."
Game battles abroad
The yen`s rise cut into its profits by 22.6 billion yen, compared to a currency gain of 43.4 billion yen a year earlier.
Sales of its Game Boy Advance handheld console totalled 15.7 million units, helped by robust demand for new Pokemon games, which sold 6.6 million units globally.
Analysts say the GameCube slump reflects the failure of the console`s brand image and games line-up to appeal to gamers over 18 years old. Even Nintendo admits that Sony has done a better job of going after that important segment of the market.
Take-Two Interactive Software`s blockbuster "Grand Theft Auto (GTA)" game, made for the PS2, proved a hit with older teenagers and young adults, and has weighed on sales of GameCube games overseas, Nintendo`s Mori said.
For this year, Nintendo aims to sell six million GameCube consoles, up from 5.8 million last year, and 20 million Game Boy Advances, an increase from 15.7 million.
The company aims to boost operating profit by 15% to 115 billion yen by promoting existing Pokemon games overseas and launching new Pokemon games for GameCube, Mori said.
In a move to boost sagging share price, Nintendo bought back 7.3 million of its own shares in 2002/03, and said it would seek shareholder approval to repurchase another 14 million shares, or nearly 10% of outstanding shares this year.
Merrill`s Desmidt said the news was positive for shareholders, but saw little else to smile about.
"You have got concerns about US consumption, you have got concerns about the company`s competitive strategy. I think there could be some more downside."
Shares in Nintendo closed up 4.04% at 8 490 yen before the announcement.
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