Thursday, October 25, 2007

Nintendo’s Income Growth Limited by Wii Production

Nintendo’s failure to anticipate the demand for the Wii and its inability to ramp-up production are seriously restraining its growth. Furthermore, Wii console shortages have encouraged Microsoft and Sony to slash Xbox and PS3 prices and capture many would be Wii buyers.

Unit sales for the Wii revealed in the October 25, 2007, Nintendo earnings release show Wii sales of 1.143 million per month for the quarter ended April 30th, 1.3 million per month for the quarter ended September 30th, and expected sales of 1.695 million per month for the six months ending March 31, 2008. While these numbers show increased production, they fall far short of meeting actual demand.

Nintendo itself has acknowledged that there will be a significant shortfall of Wii consoles for the second consecutive Holiday season. Company officials, however, have continually refused to provide future Wii production numbers creating the impression they do not have a good handle on the situation.

In fiscal 2007 Nintendo’s net income increased by 77.2%. Its net income growth rate is now forecast to decline to 57.8% in fiscal 2008. While such income growth is admirable, the actual rate would be much greater if Wii supply was more closely aligned with demand. It remains to be seen how shareholders will react to a declining growth rate in net income.

The Wii shortage is best evidenced by the continuous sales of vast numbers of Wii consoles on eBay at substantial premiums above MSRP. Meg Whitman, the CEO of eBay, needs to send a special Christmas present to Satoru Iwata, Nintendo’s CEO, thanking him for all the business the Wii shortage has brought to eBay. She might even suggest that Iwata invest some of Nintendo’s abundant cash, which totals about $8 billion, in eBay stock while the Wii console shortage persists.

It is understandable when a manufacturer misses one Holiday selling season because of insufficient product. It is unacceptable to miss two in a row!


Intelligent Investor said...

Good point. Nintendo can do even better. First step, it should try to meet the demand in US, Japan and Europe. Next step, expend to China, India and the rest of the world. If it can do that, I think its sales can reach 6,000 billion Yen without any difficulty. Its market capitalization will grow to $200 - 300 billion.
Quality and intellectual property may be the concern over increasing production. Nintendo does not want to offshore its production to China because it can be easily copied.

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Sam said...
This comment has been removed by the author.
Intelligent Investor said...

Just saw the news on BusinessWeek. Iwata said nintendo is going to sell Wii in China next year. It seems he is confident that supply will be sufficient next year.

Hasibul Haque said...

Nintendo is a good short now.
Expect it to reach $50.

Anonymous said...

correct - nintendo should be supplying the demand - and they should know better after last christmas! if you (like me) can't seem to get hold of a Wii this christmas then fear not, i have found an internet bingo game which has got seven of these (plus a whole load of other cool prizes) to give away in the weeks leading up to Christmas. All you have to do is sign up and play on game of bingo for money on any day during December (2007)... Eyes down please!!