Message to Nintendo: call a smartphone maker fast
By Wayne Arnold
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Nintendo slashed its profit forecast and the price of its newest hand-held gaming device, and its stock plummeted. The strong yen and weak U.S. consumer spending are problems, but Nintendo’s nemesis is the iPhone. If it doesn’t make a forceful entry into the smartphone market, the game could be up.
Nintendo joins a growing list of Japanese and other Asian electronics makers hit by the slowdown in consumer spending. It reported that sales in the second quarter dropped 50 percent compared to the same period of 2010, leaving it with a 25 billion yen loss. Sales in the Americas, usually its biggest market, fell by 69 percent.
With unemployment at 9.2 percent and housing still soft, U.S. consumers are increasingly spendthrift. Hurt also by rising currencies, Asia’s largest electronics companies — Samsung, Panasonic and Hitachi – all reported sharply lower results. Panasonic posted a 30.4 billion yen loss.
The pressures may have hurt Sony, which makes the rival PlayStation Vita, too. But while broad bearish trends afflict the global electronics industry, Nintendo appears to be in a particularly tough position. The growing popularity of games on Facebook makes for formidable competition.
Nintendo revised down its estimate of sales of its Wii gaming system, for the year ending March 2012, by 7.7 percent. More significant, though, is consumers’ growing preference to play games on their smartphones rather than a dedicated gaming console. Sales of Nintendo’s 3D device, launched just five months ago, fell 81 percent in the second quarter.
Nintendo’s response, to slash the price of the device by 40 percent, looks like a desperate measure. It will probably now lose money on every one it sells.
Judging by the emerging evidence, Nintendo needs to engage in some pretty fundamental strategic thinking. Is has to decide if it is best at hardware or software? It might license its games to Apple or the many companies making phones on the Android system. It could team up with a phone maker to make combination product or use its $10.3 billion cash pile to help buy one. One way or another, Nintendo needs to get much smarter about smartphones.