Nintendo, Ubisoft Continue to Dominate Gaming Market

Nintendo (NTDOY.PK) dominated March gaming sales in the US retail market. According to NPD numbers, it had the best selling console (the Wii) , the best selling portable (the DS) and even the month's top selling software title. Given that across the board strength, and following months of industry leading sales, it’s no surprise, the financials for the past few months were looking good too. The question some are asking is: can it keep up and what’s next?

Early Thursday morning, Nintendo reported fourth quarter operating profits of $900m (93.2b Yen). That was a sixty percent year over year gain and more than $100m ahead of most projections. (Consensus estimates were 82b Yen). Net profits for the quarter were also strong, up 47% to record highs of approximately $2.5b (257.34b Yen). Sales were up 73% to about $16.2b (1.672 trillion Yen).

As evidenced by robust sales, the Wii continues to be in huge demand. Since its debut in November 2006, the company has sold 24.45 million consoles. Another 25 million are predicted to end up in consumer households by the end of March 2009. To support the demand, Nintendo is considering increasing the monthly production capacity from 1.8 million units a month to 2.4 million by this summer.

Strong software results are also encouraging lofty expectations. For the next year, the company is predicting a 48 percent increase. Anticipated total unit sales, which will benefit from the May launch of Wii Fit in North America, are projected at 177m units.

With software sales and the Wii booming, the only product weak spot seems to surround the DS portable platform where questions loom over whether it is nearing the end of its lifespan. Originally, the DS (which was a code name for Dual Screen) was introduced in 2004. The goal at the time for the device was nothing short of revolutionary. Nintendo, in the words of president Satoru Iwate, wanted “to offer to customers a play experience that they’ve never had before.” It was to be a console with mass appeal built on the “idea that anyone who plays it will find it interesting.”

That goal was unequivocally reached. Since its release, the DS has sold approximately 70.6 million units (via Nintendo PDF). In March, it finished second only to the Wii on the list of top selling North American consoles.

At four years old, however, there are questions as to how much more punch the product can give. Technology changes fast, after all. Some data suggest sales have already peaked in Japan and a similar situation could soon follow in North America and Europe.

Through March 2009, Nintendo is projecting relatively modest growth compared to 2008, and also in consideration of the gaming industry’s overall strength. The current forecast calls for just a 26.3% gain in net profit and an 8.8% rise in operating profit (to $5.14b (530b Yen)). The caution is attributed to projections DS unit sales might drop from 30.3 to 28 million units.

A slow fall off of the DS is by no means guaranteed. The platform continues to easily outsell competition in most markets (Sony’s PSP). Additionally, there is some speculation that a next generation DS could be revealed at the gaming industries' big summit, E3, this summer. There’s nothing to substantiate the theory but it’s certainly possible. Nintendo has plenty of momentum to build on. And, incidentally, a summer introduction would also mimic the timetable for the existing DS (introduced at E3 and launched the following November).

UBISOFT

In other gaming financial news, Paris based software giant Ubisoft [EPA: UBI] also released results for its 4th quarter on Thursday. The numbers befit an industry that is still accelerating.

Overall, sales for the quarter were up 10% to €217. (At constant exchange rates, sales were up 20.3 percent). Sales for the entire fiscal year were €928 million, up from €680m for fiscal 2006-2007. The annual increase amounted to an improvement of 36.4% (or 42.9% at constant exchange rates).

In the US Market, Ubisoft saw growth of 38% on the quarter. Market share increased 7.2% from 6.7% in the year ago period. That qualified as the third largest Independent publisher. In Europe, the company reported slightly higher growth at 43%. Market share also increased to 9.5% from 8.4% a year ago. In the European market, on home turf, Ubisoft ranked as the second largest Independent publisher.

In sales broken down by gaming platform, Ubisoft’s strongest results were with the Xbox 360. 33% of Q4 sales went that way. The Nintendo DS accounted for 27%. The PS3 drew 23% and the Wii a modest 9%. For the fiscal year, the platform breakdown was substantially the same. The Xbox 360 and Nintendo DS each garnered 26% of sales. The PS3 earned 20% and the Wii 10%.

Looking ahead, sales for the first quarter are projected at €154m, a 15% year-over-year gain. The company’s annual sales target remains at €1 billion, in line with guidance previously given in January.