Nintendo’s Profit Falls 43%; Revenue Is Flat

Japanese video game giant Nintendo Co. on Wednesday reported a drop in profit and flat sales in the key holiday quarter as strong sales of its new hand-held Dual Screen device failed to make up for cooling demand for its full-size GameCube console.

Net income fell 43% to 21.3 billion yen, or $206.8 million, in its fiscal third quarter ended Dec. 31 from 37.4 billion yen in the same quarter a year earlier.

The creator of Mario and Pokemon games posted a 1.4% increase in sales for the quarter to 231.4 billion yen, or $2.25 billion, from 228.3 billion yen a year earlier.

Because much of Nintendo’s cash is held in dollars, analysts look to its operating profit, which excludes the effects of currency fluctuations, rather than its net income as a gauge of its performance.

Its operating profit fell 15% to 63.1 billion yen, or $612.6 million, from 73.9 billion yen.

For the fiscal year ending March 31, Nintendo projected net income of 70 billion yen, more than double the 33.2 billion yen earned during the previous year but down from the 90 billion yen projected in November. It said annual sales would be 520 billion yen, up slightly from 514.8 billion yen a year earlier.

The company increased its forecast shipment of its Dual Screen console to 6 million units by March 31, up from its previous forecast in November of 5 million.

The $149.99 device debuted in November and quickly sold out in many stores during the holiday. By the end of 2004, Nintendo sold 2.8 million Dual Screens in the U.S. and Japan.

But sales of games for the device did not take off as fast as the company had hoped, and the company now expects to ship 10 million games by March 31, down from its November forecast of 15 million.

“The hardware was selling very quickly, but people were just buying one or two games to go with it,” said George Harrison, Nintendo senior vice president of marketing. “We expect that figure to rise to four games per console by the end this year.”

Nintendo also cut its forecast shipment of its GameCube console by half a million units to 4 million. Nintendo has sold 18 million GameCubes since introducing the console four years ago.

The decline in hardware sales, however, is not a crucial concern so long as game sales are strong, Harrison said. “Towards the latter stages of a console cycle, the profitability and focus tends to shift to software” as opposed to hardware, he said.

Nintendo’s shares fell 2.3% in Tokyo trading Wednesday, its biggest drop since Dec. 9.