Nintendo's Growth Restrained by Wii Production Shortage

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!

Disclosure: Author is long NTDOY.PK

Comments

[Lauren:]

It's obvious that Sony and Xbox are struggling to sell, lowering prices is a sign of that. On top of that, they haven't been too popular either. For instance, on the release of the PS3 in America, it was outsold by the Gameboy Advance. The Gameboy Advance was a last-gen handheld console. Now that is saying something.

Nintendo have been very successful over the past couple of years, after the rather poor perspective of the gamecube. The DS and Wii has literally dominated the gaming market, and after the poor sucess of the gamecube, nintendo were taken by surprise at the publics response to their products, which are original and innotive.

2007 Oct 27 05:18 PM

[claudiman:]

I am very much worried that Wii shortages might have helped the Xbox 360 more than I expected. Nintendo is my biggest position but I have been finding out that they are sitting on the shelves here in California a little while longer. I talked to a salesperson at Gamestop and he said he had a shipment of 10 Wii's and it took 8 days to sell them. 4 months ago, those Wii's would have been gone within the day. I know they will sell out this holiday season but I really want them to press to get into China quickly to keep that growth up.

2007 Nov 01 06:34 PM