Nintendo Shares Plummet 20% As 3DS Problems Trigger Alarm

Shares of Nintendo Co. (7974.OK) plunged as much as 20% Friday, after the videogame maker left investors questioning its business model with the admission that its much-touted 3DS has failed to take off, hacking 40% off the handheld game console's price just a few months after its launch.

Saddled with a hefty first-quarter loss and a slashed fiscal year forecast, the massive price cut -- to $170 from $250 in the U.S. and to Y15,000 from Y25,000 in Japan -- sprang an unwelcome surprise on traders and analysts.

Having shed a fifth of their value within the first hour of trading, the shares briefly hit an intraday low of Y11,010 in the morning, the stock's lowest level since May 2004. By 0430 GMT, the stock staged a mild recovery and was off 15% at Y11,950. The Nikkei Stock Average was down 0.5%.

Friday's sharp decline came when the stock, as of Thursday, had already declined 41% since the beginning of the year on growing concerns over the company's business outlook.

JPMorgan wasted little time downgrading Nintendo to Underweight from Overweight, and more than halved its price target to Y9,150 from Y20,000. The cut in the price of the 3DS, which allows users to play games in 3-D without wearing specialized glasses, "places pressure on earnings going forward and highlights the severity of Nintendo's outlook," JPMorgan's Hiroshi Kamide wrote in a report.

Nomura Securities also lowered its rating to Neutral from Buy and nearly halved its price target to Y13,500 from Y26,000. Analyst Yuta Sakurai wrote to clients that Nintendo will need to "radically change its tactics" to once again increase the size of the gaming population.

Nintendo released the 3DS first in Japan Feb. 26 amid much fanfare. Hundreds of fans lined up outside stores in Tokyo on the launch day, as the Japanese company generated the kind of hype and excitement normally reserved for Apple Inc. (AAPL) gadgets like the iPad.

But the landscape in the gaming industry has changed drastically since Nintendo's 2004 release of the DS handheld machine and the launch of the bestselling home console, the Wii, in 2006.

Nintendo's game platforms now face new challenges as smartphones like Apple's iPhone and social networking services have changed the way people play games, with more casual gamers graduating to mobile-game titles like Rovio Inc.'s "Angry Birds" and Facebook games like Zynga Inc.'s "FarmVille."

"The (Nintendo) hardware price cut so early into release is an unprecedented act, highlighting that management's confidence in their contents is not enough to push through into Christmas," JPMorgan's Kamide said, noting the upcoming releases of major in-house 3DS software titles like Super Mario in November and Mario Kart in December.

-By Juro Osawa, Dow Jones Newswires; 813 6269 2794; juro.osawa@dowjones.com

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