NINTENDO CO. LTD

Nintendo Co. Ltd.

Nintendo Co Ltd

Introduction

Nintendo Co., Ltd., today a giant in the electronic game industry, is the product of over 100 years of research, risk-taking, and innovation. Up to now, Nintendo has sold more than one billion games around the world, and images like Donkey Kong, Mario, Zelda, and Pokemon are all well recognized.

The global recession doesn't seem to have slowed Nintendo's momentum much. On May 7, Nintendo (7974.T) reported a 14% gain in operating profits, to $5.6 billion, for the fiscal year through March, and a 10% rise in sales, to $18.6 billion. Both figures shattered the previous year's all-time highs and were in line with what analysts had expected for the Japanese video game maker(www.nintendo.com).

Nintendo has been a bright spot in an otherwise dismal Japanese tech sector. Its Wii living-room console and newly released portable DSi have been a big draw for both nongamers and hard-core gamers. In the past year the company has racked up a return on equity of around 22% and operating-profit margins of 29% — well ahead of other Japanese tech and video game makers, analysts figure(www.nintendo.com).

But the company's latest record-breaking figures could be its last for a while. In fact, Nintendo's own not-so-optimistic forecasts have analysts and investors wondering whether the company is helpless to keep its streak from ending. For the fiscal year ending next March, Nintendo expects a 12% pullback in operating profit — its first in four years — and a 2.1% slide in revenues. That's not bad given how the sudden slowdown has slammed other sectors. Still, the skepticism partly explains the drop in the value of Nintendo's stock by half since last June, and its 21% fall since early January. [The benchmark Nikkei average has rebounded 6% so far this year.] Following the announcement, the company's shares fell 0.1%, compared to the Nikkei's 4.6% rise(www.nintendo.com).

Key Strategic Issues

Lack of New Products

Nintendo invented the 3D platformer, yet they have no major product in that niche at the moment. However, consider the following portfolio management issues:

Fixation on New Genres

Nintendo makes the majority of their money by leveraging their brand recognition during the early to mid-stages of a genre's life cycle. The power of the Mario character can establish a Nintendo game as an early genre king and help tap into a new market segment for great profit. However, as they get later into the life cycle, the standardization of the genre mechanics and the intense demands of the hardcore population reduces the power of the brand(Coughlan, 2001, p1-9).

A few major games will dominate the mature genre and it is unlikely that Nintendo's will be one of them. Nintendo's fixation on new genres and their unwillingness to pander completely and utterly to the existing hardcore audiences has made their name mud with many of the most vocal elite in the game industry(Hall, 2008).

Innovativeness and profitability

Nintendo's profitability and need to innovate go hand in hand. They need those new genres because the old ones quickly become too competitive and too expensive(Washington, ...