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Disastrous Wii U sales send Nintendo spinning toward $336 million loss

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Nintendo released an update Friday to its financial projections for the year ending March 31, 2014 that reveals a flip from a profit to the company's third consecutive annual loss. The primary culprit is disastrous sales of the Wii U but the Nintendo 3DS did not fair much better during the holiday sales season.

The games maker now projects that it will suffer a ¥35B ($336M) operating loss for the fiscal year versus the earlier projection of a ¥100B profit. This is due in large part to Wii U sales projections for the year being cut by almost 70 percent from 9 million all the way down to 2.8 million. While the Wii U did see an uptick in sales due to a price cut, holiday sales and better software, it is clear that the company's forecasts were wildly out synch with the marketplace as even the Nintendo 3DS saw its forecast dropped by 4.5 million from 18 million units to 13.5 million units.

The disappointing sales of both platforms understandably impacts Nintendo's software sales as well which affects the company's bottom line. Nintendo President Saturo Iwata promised last year to return the company to profitability but told reporters during a press conference that "[t]here will be no major management shake-up in the short term."

"Wii U sales...showed some progress in the year-end sales season as we released various compelling titles from the summer onwards, launched hardware bundles at affordable price points and also performed a markdown of the hardware in the U.S. and European markets; however, they fell short of our targeted recovery by a large margin," Nintendo president Saturo Iwata explained in an earnings statement.

"In particular, sales in the U.S. and European markets in which we entered the year-end sales season with a hardware markdown were significantly lower than our original forecasts, with both hardware and software sales experiencing a huge gap from their targets. In addition, we did not assume at the beginning of the fiscal year that we would perform a markdown for the Wii U hardware in the U.S. and European markets. This was also one of the reasons for lower sales and profit estimates.

"We therefore modified our unit sales estimates in accordance with our performance in the year-end sales season and after the turn of the year, and the drop in software sales had the largest negative effect on our profit forecasts."

Nintendo has been slow to embrace online gaming, internet sales and mobile platforms compared to Microsoft and Sony. While the Wii U and Nintendo 3DS are both now online with eShops, the mobile angle has still yet to be covered.

“We are thinking about a new business structure,” Iwata said at a press conference following the release of the forecast modifications. “Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business. It’s not as simple as enabling Mario to move on a smartphone.”

Gamers, developers, publishers and markets will now be focused intensely on what changes Nintendo can make in 2014 to turn around its fortunes.

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