Humbled by a series of missed targets over the past five years, Nintendo President Satoru Iwata promised a more realistic earnings forecast for the year ahead.
But investors aren't buying it.
Following the release of fourth quarter results, CLSA analyst Jay Defibaugh not only stuck to his expectation that Nintendo will remain in the red this year, but expanded his operating loss forecast to Y34 billion from Y29 billion.
Calling the full-year outlook "overly optimistic," Defibaugh questioned how the company can achieve its targeted 3.2% growth in annual revenue while anticipating a 22% drop in software sales volume. In a client note, he also expressed skepticism whether Nintendo will be able to maintain its pricing for the 3DS hand-held game device.
Reporters on Thursday also peppered Iwata with questions on why he thinks he can achieve his target this time after the company has repeatedly lowered its forecasts since fiscal 2008 – most recently in January when he conceded the company was falling into the red due to dismal sales of its flagship Wii U game console.
Let's take a look into his list of reasons:
- Lower research and development costs: R&D expense rose 34% in the previous fiscal year ended in March, but they are projected to fall 21% this year to Y57 billion.
- Weaker yen: Nintendo predicts the euro to average Y140 this year versus Y134 in the previous fiscal year. A weaker yen inflates the value of the company's overseas assets. (Nintendo doesn't have a sales breakdown for Europe)
- WiiU: The company has already booked an impairment loss on inventory units for Wii U during the fiscal year that ended March 31. Profit margins of Wii U that were hurt by a price cut should also improve this year.
To be sure, Nintendo's latest operating profit forecast is 60% lower than its original forecast last year at Y100 billion, which Iwata has admitted was too ambitious. Even then, both analysts and investors remain wary amid the competitive environment posed by the influx of free or cheap games offered on smartphones and tablets.
Another missed earnings will likely increase calls for a management revamp, but Iwata said his way of taking responsibility was not to walk away.
"What I need to do is not to resign, but to recover the business quickly, to bring Nintendo back into a condition where it can generate stable profits, and shape the company so it can take another leap forward," he said.
Source : http://stream.wsj.com/story/latest-headlines/SS-2-63399/SS-2-526596/
