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Nintendo Cuts Earnings Guidance by Half

Gamers seem to be taking a “wait and see” approach with Nintendo, which has caused a slowdown in hardware sales. The Wii U, which has sold over 11 million units worldwide, never really caught on with the more mainstream gamers that catapulted Wii to sales of over 101 million. Now even the Nintendo 3DS line of portable devices, which have an install base of over 52 million, have slowed down.

As a result, Nintendo has sliced its financial year profit estimate in half from 35 billion yen ($310 million) to 17 billion yen ($151 million). The Japanese company lowered its overall revenue for the year by 12% to 500 billion yen ($4.4 billion). Its operating profit forecast was slashed by a third to 30 billion yen ($265.7 million).

“A combination of currency fluctuations and lower-than-expected sales of the 3DS forced Nintendo to cut its annual operating income forecast by about 34%,” SuperData Research CEO Joost van Dreunen says. “The release of new hardware has been disappointing, which led Nintendo to reduce its hardware forecast by 1 million and its software by 9 million units for 2015/16.”

Nintendo also lowered fourth quarter sales estimates for its Nintendo 3DS hardware and software. But based on the much-anticipated release of the new Legend of Zelda game this year, Nintendo increased its sales estimates Wii U hardware by 17% and Wii U games by 75%.

This revised guidance comes in the wake of Nintendo’s third quarter results, which saw an 18% drop in profit and a 36% fall in income year-on-year. The company has also been hurt by a stronger-than-expected Yen.

Perhaps the biggest issue Nintendo faces is anticipation for its next console, the Nintendo NX. Nintendo announced the device last year but hasn’t revealed much information about it. The system is expected to make its public debut in June, likely at the E3 trade show in Los Angeles and launch this fall ahead of the holiday season rush.

Nintendo president Tatsumi Kimishima told Time that the NX won’t be the next version of Wii or Wii U, calling it something “unique and different.”

Online reports suggest a new Legend of Zelda and Super Smash Bros. game will be launch titles for Nintendo NX this fall.

According to a Digitimes report, Nintendo’s component suppliers will provide the company with enough hardware to ship 10 million to 12 million NX devices worldwide in 2016. That could catapult the NX over the Wii U in one sweep, assuming the new gaming device takes off. Foxconn Technology, Macronix, Pixart Imaging, Coxon Precise Industrial, Nishoku Technology, Delta Technology, Lingsen Precision Industries, and Jentech are all expected to manufacture components for the NX.

Stephanie Llamas, director of research and consumer insights at SuperData Research, believes gamers are just waiting to find out more info about the NX.

“If you own a Wii U, you have one,” Llamas said. “But if you don’t own one now, you’re not going to buy it because the console hasn’t received a great reception, and a whole new console is coming out this year.”

After receiving a boost in hardware sales from its in-game extras service amiibo, Llamas said those figures are starting to wear off after a couple of years. There are still people who are invested in collecting the toys, but amiibo is not driving hardware sales any more. She added Disney Interactive’s Disney Infinity catapulting to the top of the toys-to-life category has also impacted amiibo sales given the physical and financial commitment of collecting these figurines.

On the 3DS front, smartphones, tablets, and free-to-play mobile games are cutting into Nintendo’s profits. That’s one reason Nintendo has entered the mobile games business through a partnership with DeNA.

“Nintendo fans are willing to pay for the hardware and software because of the nostalgia, but less people are willing to do that because there’s such great mobile content available and it’s free-to-play,” Llamas speculated.

Despite the recent bad news, Llamas isn’t counting Nintendo out. After all, before the Wii took the world by storm, the GameCube was a huge failure. The NX could rebound after the Wii U.

“Nintendo has had setbacks before and has come back from them,” Llamas said. “I don’t think they’re going to give up that easily. They have cash flow and they’re doing well revenue-wise. They’ve learned a lot from their failures in the past, and they’re also moving to mobile.”