Strong Yen, Weak Sales Hurt Nintendo Profits

Nintendo can't escape the general woes of the video game industry as the company posts its first net loss in two years, hampered by a strong Japanese yen and declining sales of its popular DS handheld console.

Reduced demand for Nintendo's most popular console, the portable DS gaming system, and a strong Japanese currency were responsible for the gaming company's first quarterly loss in two years. For the last three months ending in June, Nintendo July 29 posted a net loss of $289 million (25.2 billion yen), compared with a profit of $486 million (42.3 billion yen) during the same period in 2009. Sluggish software sales contributed to the drop, as did a 33 percent dive in DS sales.

Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management, told Bloomberg News that the company's near-term future could remain bleak. "The foreign-currency fluctuation exposure and sluggish consumer demand in the U.S. add up to a rather bleak outlook for the company," he said.

An analyst at Citigroup Global Markets in Tokyo, Soichiro Fukuda, told Reuters, "The strength of the yen affected [Nintendo] badly on the profit side."

Nintendo is preparing to release the latest version of the DS with three-dimensional video capability. The 3DS handheld, which Nintendo said will be available before the end of 2010, does not require users to wear special glasses to see 3D images and instead relies on a motion sensor and three cameras. "Investors are now waiting for the 3DS to come out to see how much boost Nintendo can get from it," Tokai Tokyo Research Center analyst Yusuke Tsunoda told The Wall Street Journal.

The company's last non-handheld console device, the Wii, upended the industry with an innovative, motion-control design and an attractive price point-not to mention an appeal that spread beyond traditional hard-core gamers. However, rivals Microsoft, which makes the Xbox 360, and Sony, which offers the high-tech PlayStation 3, are also gearing up to offer motion-sensitive 3D experiences before the year is out. Microsoft's Kinect motion-sensing controller, which will retail for $149.99, was recently introduced at the E3 video game convention, while Sony's Move controller and 3D games are likely to increase competition.

Serving as a backdrop to all this is an industry struggling to get back on its feet. The video game industry suffered another drop in June, according a report from The NPD Group, falling 6 percent to $1.1 billion, compared with $1.17 billion in June 2009. Nintendo led hardware sales with its handheld DS device and software sales with Super Mario Galaxy 2. Overall, the sale of video game hardware, led by Nintendo, was a bright spot, climbing 5 percent to $401.7 million compared with $382.8 million in June 2009.