Nintendo Shares Decline on Concern Revival Plan Falls Short

Jan 30, 2014 1:39 am ET

(Updates with closing share price in second paragraph.)

Jan. 30 (Bloomberg) -- Nintendo Co. fell in Tokyo trading, reversing earlier gains as President Satoru Iwata failed to impress investors with plans to improve profit at the struggling video-game maker.

The company won’t heed calls by some analysts and investors to release existing game titles for smartphones, Iwata said at a briefing today in Tokyo. Nintendo fell 4.3 percent to close at 12,325 yen after saying it will stick with its main business model focusing on both gaming hardware and software.

Iwata is under pressure to revive profit after customers shunned the Wii U, the company’s latest home-gaming machine, causing it to cut sales forecasts and project an annual net loss. Nintendo plans to explore new business areas and boost licensing of its characters such as Mario and Zelda, the 54- year-old executive said.

“I don’t think the market will value this business plan,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo. “Nintendo has to find a way to win back casual gamers. The licensing business isn’t new.”

Nintendo rose as much as 7.5 percent in early trading after saying yesterday it will spend as much as 125 billion yen ($1.2 billion) buying back as many as 10 million shares, or about 7.8 percent of outstanding shares. Japan’s benchmark Nikkei 225 Stock Average declined 2.5 percent.

“I don’t see any path to an earnings recovery in the short term,” said Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co. “The business plan was as I expected. I didn’t foresee any drastic changes.”

Casual Gamers

The casual gamers who made Nintendo the leader of a $93 billion industry have abandoned its standalone machines like the Wii U for cheap downloads they can play on a Samsung Electronics Co. Galaxy phone or an Apple Inc. iPad. New, faster consoles from Sony Corp. and Microsoft Corp. have run away with the hardcore players still willing to pay $400 for a machine and $60 for a title like “Call of Duty.”

Nintendo on Jan. 17 revised its profit forecast, projecting a 25 billion yen ($245 million) net loss for the fiscal year ending March, compared with its previous 55 billion yen profit estimate. The company lowered its sales forecast for the Wii U to 2.8 million consoles from 9 million and halved its projection for Wii U game sales to 19 million units.

Nintendo is developing a “service application” for smart devices for release this year that will help strengthen the company’s ties with consumers, Iwata said today. The company hasn’t ruled out the possibility of the application including games or Nintendo game characters, though it doesn’t plan any outright release of titles for smartphones.

Health Business

“Simply releasing our games just as they are on smart devices would not provide the best entertainment for smart devices, so we are not going to take any approach of this nature,” Iwata said in comments posted on Nintendo’s website.

Tying Nintendo’s iconic characters to its hardware helped boost demand for the original Wii, which sold more than 100 million units and became the world’s best-selling console.

Nintendo also plans to start a new health-related business by March 2016 that will include hardware and software. It will be an entertaining “non-game” business using non-wearable devices and will help “boost users’ quality of life in terms of health,” Iwata said, without giving additional specifics.

Iwata said the company may consider acquisitions or capital alliances as it seeks to expand its licensing business.

Iwata will cut his pay from February to June, and other company directors will take pay cuts of as much as 30 percent, the company said yesterday. The president has said he won’t step down after about 12 years running the company.

--Editors: Terje Langeland, Aaron Clark