By Dan Gallagher
Shares of video-game publishers took a hit Wednesday after
Nintendo Ltd. slashed its fiscal-year forecasts and said its new 3D
handheld-gaming console wouldn't come out in Japan until
February.
Although the company hadn't previously set a release date for
the console, many analysts had been expecting the Nintendo 3DS to
hit the Japanese market in time for the holidays, with a U.S.
launch to follow in early 2011.
Nintendo's (NTDOY) U.S.-listed shares dropped 8% by midday
Wednesday.
Earlier in the day, the company scaled back its earnings and
revenue forecasts for the fiscal year, citing lower expectations
for holiday sales of game consoles and software. It cut its
handheld unit sales forecasts by 22% and its Wii console targets by
3%.
The warning pressured shares of third-party game publishers that
produce titles for Nintendo consoles. Activision Blizzard (ATVI),
Electronic Arts (ERTS) and THQ Inc. (THQI) were all trading down
more than 1% by midday Wednesday.
Analysts said Nintendo's warning shouldn't be interpreted as a
sector-wide problem, despite the fact that overall video-game sales
have been declining this year. U.S. sales of game hardware and
software are down about 8% for the first eight months of this year
compared with the same period last year, according to NPD
Group.
"If you think about it, the declines for Nintendo software are
more than the total decline in the industry, so it's a
Nintendo-specific issue," said Michael Pachter of Wedbush Morgan in
an email.
While Nintendo has enjoyed runaway success with its Wii console
as well as its DS handhelds, both platforms are showing some signs
of age. The Wii can't offer the same level of high-definition games
like Microsoft Corp.'s (MSFT) Xbox 360 and Sony's (SNE) PlayStation
3, and both of those consoles will feature motion-gaming technology
for the coming holiday season, negating some of the advantages
enjoyed by the Wii.
"Their products are not competitive with next-generation console
technology or with the iPod Touch," Pachter said.
Arvind Bhatia of Sterne Agee said third-party publishers like
Activision and EA have focused on games for the 360 and PS3
consoles, so they don't face much pressure from lower sales of
Nintendo hardware.
"We think the lowered forecast is negative for Nintendo, but we
do not see a significant impact on the third-party publishers under
our coverage as they have been reducing exposure to these systems
for some time," Bhatia wrote in a note to clients Wednesday.
Staying Relevant
For Nintendo, the main challenge to its strong handheld-gaming
business comes not from other game-console makers, but from Apple
Inc.'s (AAPL) mobile devices such as the iPhone, iPod Touch and
iPad.
Because these devices offer a plethora of free or cheap games in
a touch-screen environment, analysts say Nintendo needs to offer a
differentiated portable-gaming experience that will allow consumers
to justify paying a premium for the experience.
This is the intent of the 3DS, which is expected to hit the U.S.
market sometime in late March at a price of $250 to $300, although
Nintendo hasn't released final figures yet.
"You're seeing a lot of questions about the handheld-gaming
market right now. The iPhone and smart-phone market is killing the
category," said Todd Mitchell of Kaufman Bros.
Jesse Divnich, head analyst for Electronic Entertainment Design
and Research, said a perceived delay of the 3DS won't be as
important in the long term as it is for Nintendo to get the device
right.
"EEDAR believes there is both a short-term benefit (by not
placing a third new device into the holiday lineup for consumers)
and a long-term benefit (by allowing publishers and developers
additional time to create compelling content) in the selected
launch timing for the 3DS platform," Divnich wrote in a report
Wednesday.
-Dan Gallagher, 415-439-6400; AskNewswires@dowjones.com