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Nintendo Co., Ltd : Nintendo Racks Up Operating Loss

10/30/2013 | 04:06am US/Eastern
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OSAKA--Nintendo Co. (7974.TO) racked up bigger-than-expected quarterly losses on tepid sales of its flagship Wii U game consoles, prompting its president to acknowledge that the time could be near for a status check on the company's strategy.

Making a rare appearance at a Wednesday press conference in Osaka to explain the company's earnings, President Satoru Iwata said that the success of Nintendo's newest console and the future direction of the firm were riding on the performance of a slate of new games during the upcoming holiday sales season. Once those results were in, Nintendo executives would review them to decide "what the company needs to do, over the long-term, about its platform," Mr. Iwata said.

Mr. Iwata didn't elaborate further on options, although he said that he still didn't think a major strategic overhaul was needed.

Mr. Iwata's statement underscores the tremendous pressure the world's biggest videogame company is under to change its console-centric business model, as the videogame industry moves increasingly to a model where games are downloaded, and can move seamlessly between platforms -- including social networks, mobile phones, tablets, computers, and consoles. Sales of Nintendo's Wii U console, released in November last year, are extremely poor: In the six months through September, Nintendo had sold 460,000 units, just 5% of its 12-month target.

Investors and analysts are calling for the company to make its prized game franchises -- like "Super Mario," "Pokemon" and "Zelda" -- more widely available, and release them on mobile platforms. Some investors say releasing Nintendo's formidable content on mobile apps could double or even triple Nintendo's share price.

In the past, Mr. Iwata has said doing so could mean death for the company, which relies on the lure of its games to convince players to buy its hardware. On Wednesday, Mr. Iwata's stance appeared to have softened, although he still maintained that the company's fortunes could turn around with upcoming releases of key titles such as "Super Mario 3D World," "Wii Party U," and "Wii Fit U."

"One game has the power to change everything," Mr. Iwata said, smiling often during the meeting with reporters, which lasted almost an hour beyond the initially scheduled 30 minutes. "Are we satisfied with these sales results? No. Is it impossible to recover from this? No."

Nintendo is struggling to adapt to a fast-changing world in which game apps on smartphones and tablet computers are capturing more of the casual players that had made its blockbuster Wii console and popular Nintendo DS handheld game machine fixtures in living rooms and children's backpacks around the globe. It also faces additional pressure from powerful, next-generation consoles to be rolled out by Sony Corp. and Microsoft Corp. in November.

A scarcity of compelling titles over the summer translated into a net loss of Y8 billion ($81.4 million) and an operating loss of Y18.4 billion for the second quarter of Nintendo's business year, ended Sept. 30. That's only a shade better than the net loss of Y10.8 billion and operating loss of Y18.8 billion posted for the same quarter a year ago.

The third straight quarterly operating loss puts Nintendo's target of Y100 billion in operating profit for the 12 months ending March 2014 further out of reach.

Mr. Iwata, who has said he is committed to the operating-profit target, put on a brave face, telling reporters that that target was still achievable. Nintendo also kept its full-year sales forecast for Wii U consoles at 9 million units. Before the latest results were released, market consensus for Nintendo's full-year operating profit was Y67 billion.

In spurning smartphones and tablets, Nintendo has argued that its success is based on its ability to build its own hardware and provide a gaming experience not available elsewhere. It says that sharing that experience on smartphones may erase the company's unique edge, discourage people from buying Nintendo devices, and kill its game franchises.

Write to Mayumi Negishi at mayumi.negishi@wsj.com

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