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Nintendo cuts annual profit forecast on strong yen

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[October 30, 2008]  TOKYO (AP) -- Pokemon, Mario and the Wii are as hot as ever, but the onset of a headstrong yen forced Nintendo Co. to prune its money-making ambitions Thursday.

The Kyoto-based video game and console maker cut its annual net profit forecast by nearly 16 percent because of the stronger Japanese currency, which erodes overseas earnings. It now predicts a net profit of 345 billion yen ($3.5 billion) for the fiscal year, down from the 410 billion yen estimated in August.

RestaurantThe outlook is based on an exchange rate of 100 yen to the dollar instead of 105. The yen recently soared to a 13-year high near 91 yen but has since eased to about 98 yen. Nintendo derives nearly 90 percent of its revenue from overseas markets.

With the downgrade, Nintendo becomes the latest Japanese exporter whose fortunes this year are at the mercy of foreign exchange rates. Flagship companies like Sony Corp., Toyota Motor Corp. and Honda Motor Co. have all lowered expectations, and others are expected to follow suit.

What sets Nintendo apart, however, is that the global slowdown hasn't dented demand.

Consumers may not be buying cars, but they're still standing in line for the Wii and the popular "DS" handheld device. Its focus on attracting nontraditional gamers such as women and senior has been a key to its stellar growth in recent years.

As a result, its numbers represent a relative bright spot in an otherwise bleak earnings season.


The company posted net profit of 144.8 billion yen ($1.5 billion) in the April-September period, up 9.4 percent from the previous year. Sales increased 20 percent to 836.9 billion yen ($8.6 billion), while operating profit surged 34 percent to 252.2 billion ($2.6 billion).

They figures also confirm that the gaming sector, which is generally insulated from economic swings, is managing to hold its own even amid the current severity, said Hitoshi Kuriyama, an analyst at Merrill Lynch in Tokyo.

The company sold 10.1 million Wii units worldwide during the first half, up 38 percent from last year, and it said it expects to sell 27.5 million this fiscal year through March 2009. It sold 13.73 million DS hand gaming systems, up 3 percent even though the device has been on the market for four years.

Software for the DS (which stands for "dual screen") did well, with sales of "Pokemon Platinum" in Japan surpassing 1 million units in the first three days after launch, the company said. Also popular with consumers were the "Mario Kart Wii" and the "Wii Fit" exercise game.

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While other exporters are bracing for a brutal holiday shopping season, Nintendo remains bullish and is ramping up production of the Wii to meet current and expected demand.

The company recently unveiled its new DSi model, which comes loaded with a camera and music player. It will appear in stores in Japan this weekend and will be available overseas next year.

It maintained its full-year revenue estimate at 2 trillion yen ($20.4 billion).

The key going forward is to see "whether it can really sell that many units in the second half," Kuriyama said.

Nintendo's earnings are based on Japanese accounting standards.

In trading Thursday, Nintendo shares advanced 10.9 percent to 30,700 yen. The issue has lost about 40 percent of its value over the last two months amid steep declines in Tokyo equity markets.

But earlier this month Credit Suisse maintained its "outperform" rating on Nintendo stock, though reduced its target price to 59,000 from 69,000 yen.

"We expect Nintendo's share price to bounce back once the stock market stabilizes," said analyst Jay Defibaugh in the report.

[Associated Press]

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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