As the Japanese giants announce staggering losses, we find the truth behind the numbers

The new issue of Nintendo Gamer is on sale now.

Late last year, Nintendo sent shockwaves through the games industry by saying they were expecting their first annual loss in their 30 years in the business. There were outpourings of words we didn't quite understand as people we'd never heard of declared that it was the beginning of the end for Nintendo. Just look at the balance sheet, they said. Was that a Wii Fit reference? We weren't sure, so we set about finding out.


At first glance, things look pretty bad. Nintendo's results for the first six months of the current financial year - which, in Japan as in the UK, runs from 1 April to 31 March (officially because that's what the government does but we suspect it's because no one can be bothered to trawl through bags of receipts in the run-up to Christmas) - make for grim reading. Sales revenue was down 147.4 billion (£1.2 billion), a fall of over 40%. During the same period in 2010, Nintendo was hit with a relatively small loss of 2.01 billion (£16.6 million). One year later that had grown to 70.3 billion (£579.8 million) - almost 35 times as much.

Dig a little deeper and the picture becomes even bleaker. Of that 70 billion, 25.5 billion was lost in the first three months of the financial year; Nintendo lost even more money in the second quarter than it did in the first, despite the 3DS price cut in August and hardware sales tripling.



What caused the loss? It's tempting to put it down to research and development costs; Nintendo are, after all, beavering away on Wii U ahead of its launch later this year. Unfortunately, R&D spend rose less than 2% from 2010, when Nintendo were putting the finishing touches to 3DS and, no doubt, also working on their Wii successor. Marketing, then? They had the 3DS to promote, after all. Nope: advertising spend actually fell by almost 10%.

The reality: it's mostly down to sales.

Nintendo were worst hit in the US, where revenue fell by 85.9 billion (£708.9 million) - a drop of more than 50%. Exchange rates also played their part. The actual value of currencies changes on a minute-to-minute basis, according to what's going on in the world. With much of the West trying to pull itself out of a financial crisis, and most European governments scrabbling down the back of the sofa to pay their bills, the euro, the US dollar and our pound are all struggling. The Japanese yen, however, is fine. This means that the £40 you spend on a Nintendo game is worth a lot less in Japan than it was a year ago.

This is something that's not just hitting Nintendo but all Japanese companies that are big exporters, and Nintendo said their losses due to foreign exchange rates alone came to 52.4 billion (£432.4 million). All of this led Nintendo to adjust their forecast for the full financial year and predict an annual loss, for the first time in 30 years, of 20 billion (£165 million).


It was thoroughly depressing stuff for Nintendo fans, and for company president Satoru Iwata. He'd soon get it in the neck from investors and analysts, who took one look at the achievements of Apple - who, following the success of iPhone, iPad and the App Store, were at one point last year worth more than the US government - and said Nintendo should move, or buy, into the smartphone market.

Just as it had after the Wii U announcement at E3 in June, Nintendo's share price tanked. Investors saw the company as a relic, unwilling or unable to adjust to a gaming landscape vastly changed by 69p smartphone apps. They sold Nintendo stock in droves, and when there's a plentiful supply of shares on the market, demand for them goes down, and so does the price.

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