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Nintendo says gamers still spending

Consumers are continuing to buy video games despite the financial crisis, Nintendo said on Thursday, but the world’s largest maker of game consoles still cut its earnings forecast as the strong yen eats into the profits of Japanese exporters.

Nintendo, which leads rivals Sony and Microsoft in the sale of this generation of video game machines, said that even in the last few weeks as the world realised the severity of the economic downturn, sales remained strong. It reported first-half operating profits of Y252bn ($2.6bn), up 34 per cent on last year, and raised its sales forecast for the Wii console by 1m to 27.5m units. It cut this year’s net income forecast by 16 per cent to Y345bn, however.

Nintendo’s resilience supports the theory that consumers will turn to cheap, stay-at-home entertainment such as video games in a weak economy, but it also shows that even Japan’s most successful exporters are suffering from the yen’s strength.

The success of the DS handheld console and Wii home console has turned Nintendo into Japan’s biggest electronics company by market value. Both hit products are based on innovative user interfaces: DS games are controlled with a touch screen, while the Wii controller can measure physical movements by the player.

Most of Japan’s big consumer electronics companies have now reported and Nintendo’s strong results confirmed some of the first half trends. While Sony gave a disastrous profits warning last week, its PlayStation division enjoyed sales which beat the expectations of many analysts.

Kazuo Hirai, the president of Sony Computer Entertainment, recently told the Financial Times that because games were an affordable pleasure, they would be less affected than other industries by the slowdown.

The picture in the televisions sector is more mixed. Sharp on Thursday reported that first half operating profits were down 36 per cent to Y50.8bn, in part because of the falling price of liquid crystal panels used to make TVs. Pioneer, another TV maker, said on Thursday that it suffered an operating loss of Y13bn in the six months. Sony had earlier cut its forecast for TV sales this year by 1m to 16m units.

TV sales are still strongly up on last year, however, as consumers upgrade to digital flat panel screens before analogue broadcasts are switched off around the world. Panasonic has expressed quiet confidence about Christmas sales and Toshiba’s TV business is back in the black.

Gadgets that do not entertain depressed consumers, however, are suffering. Every manufacturer of compact digital cameras – which have some of the highest margins in the industry – has reported weak sales and sales of mobile phones have been terrible in Japan, where the market has slumped because of cuts to handset subsidies.

In terms of profitability, the companies that have done best are those such as Panasonic, which have done the most to restructure, cut costs, and move production abroad, and Sony, which is expected to make deep cuts.

“The consumer electronics sector has entered a stage where a shift to a restructuring strategy from an expansion strategy is needed,” analysts at Citigroup wrote in a research report.

The other issue that dominates the sector is exchange rates. Both Sony and Nintendo are assuming that the yen will fall back to Y140 to the euro for the rest of the year, compared to Y128 today, but if the yen remains strong Japan’s consumer electronics makers will face an ever-growing threat from cheaper rivals in Taiwan and Korea.

Источник: Financial Times

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