July 31st, 2013, 22:00 Posted By: wraggster
IHS analyst says company's inability to ride 3DS sales to profit is concerning, holiday Wii U performance crucial to system's long-term outlook
Last month, Shigeru Miyamoto said Wii U software delays had been the result of Nintendo underestimating the cost of high-definition development. The company's efforts to catch up could weigh heavy on Nintendo's bottom line for a year or more, according to one industry analyst.
After Nintendo released its quarterly results today, IHS head of games Piers Harding-Rolls released a note putting into context the company's inability to post an operating profit even when 3DS sales were performing better than expected.
"While 3DS platform profitability has grown during the quarter, the traditional slow nature of sales from April to June means that any significant increase in R&D costs for Wii U software would easily overwhelm these profits," Harding-Rolls said. "Even so, IHS expects R&D costs for Wii U software to continue to undermine profitability for at least the next four to six financial quarters, as Nintendo seeks to generate momentum for the stalled Wii U platform by spending more on developing its own software."
Harding-Rolls said the Wii U has been a "stalled" platform, with just 160,000 units shipped from April to June. But as grim as that number might sound, the analyst downplayed its importance for a few reasons. First, the Wii U software lineup only begins to pick up in the back half of the year. Second, Nintendo is expected to ramp up its marketing efforts for the console significantly. Finally, and perhaps most importantly, Nintendo sales are heavily seasonal.
"[U]ntil we experience a strongly backed holiday sales season for the Wii U, long-term outlook is less clear," Harding-Rolls said. "If sales of the Wii U fail to impress during the holiday season, IHS will downgrade its outlook for the platform and implement a significantly shorter sales cycle for the Wii U compared to the other next generation consoles."
Harding-Rolls isn't the only one looking to the fourth quarter for signs of the Wii U's fate. Last week, Baird analyst Colin Sebastian said the system needed a price cut, adding, "the fate of the platform will likely rest on the popularity of Nintendo's holiday software lineup."
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