IR Information

Financial Results Briefing for the 69th Fiscal Term Ended March 2009
Q & A
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Q 1   Under the circumstance where shrinking of video game market may be concerned, your company's products have been performing well. However, since the start of the financial crisis, I understand that the environment surrounding the company has been drastically changing. With that, have you noticed the changes in the strategies and actions by third parties and retailers? Please advise us including any influences to the company and your countermeasures.
A 1

Satoru Iwata (President):

  When we revised our annual financial forecast in January this year, we received a number of comments especially on our software and hardware sales projections that Nintendo may be too conservative relative to the actual situation.

  At that time, I felt what had been affecting the environments surrounding us the most was that people in the distribution channels around the world were taking a very cautious attitude about holding inventory, and as a result, they were taking a conservative approach when it came to placing orders for products. When this happened, the shipment forecasts by software publishers decreased and we had to lower our production forecast. There really was such a cycle at that time.

  On the other hand, as you have noticed, the video game market has been relatively insulated from the changes in the economic circumstance when compared with the other industries. Therefore, many of the products that had actually been shipped to the distributors and retailers have been sold through to the consumers although the sales level varies depending on the product. Products with good sales results receive repeated orders so the products sell even more. We have observed that kind of tendency.

  However, there are different types of software. Some are intended to be sold in a short time period so they are meant to make a steep sales peak within a short time range. Others are supposed to sell for a prolonged time period and meant to gradually build up sales in the long run. When distributors and retailers become conservative, the type of the software which must be sold thorough in a short time period receive the inevitable impact. This appears to have affected the software publishers' businesses.

  I felt that this was the biggest external impact. On the other hand, while there seems to have been a sense of panic amongst the distributors and the retailers from the end of last year until the beginning of this year, the situation today looks like it is calming down. So, I think such impacts will gradually weaken from now.

  Having said that, when we analyze any businesses, we often make a comparison with the previous year or with the corresponding month a year ago Last year in April, May and June, we launched very compelling software one after another so that the overseas markets enjoyed unusual sales not tied to seasonality. This year, the company has to try and live up to that unusual sales results of last year. However, our major titles will be launched during and after summer this year.

  As a result, when we focus upon the first quarter performance of our current fiscal year, it will not be easy to outnumber last year's result. When you look at our financial forecasts for the mid-term and annual term, you must have noted that the allocation is different from that of last year. The timing for much-anticipated software launches decides our expected sales pattern. We analyzed that this year would be closer to how video games are usually sold within a year (i.e., the sales are mainly made in the year-end holiday season) and made the financial forecasts.

  I am neither excessively pessimistic nor optimistic about it but in this ever-changing economic situation, we would like to continue our efforts so that we can maximize our business opportunity.

Q 2   I'd like to ask you about price. You once said that you do not want to cut price because doing so would make early purchasers feel like they lost their money. But I think you may want to consider a price cut of Nintendo DS Lite in order to increase domestic sales. Including myself, those who have purchased a Nintendo DS Lite early on have also purchased a Nintendo DSi, so they should not feel regret even if you cut the price of Nintendo DS Lite. What is your current thinking on price cuts?
A 2


  First of all, thank you very much for purchasing several of our products. When I was referring to this subject the last time, it was in the context that it would not be a good idea for price cuts to be expected as a regular practice in the industry. Of course, I have never said that cutting the suggested retail price is not in the cards. However, price cuts in one country can certainly affect other countries. For example, when you say that we should cut the price in Japan due to the current domestic market situation, once the suggested retail price is cut in Japan, people outside Japan will anticipate the same around the world.

  10 or 15 years ago, each country could decide its own price policy in the video game market, as you know, however, price policy has become a global subject in the recent years. So, any price policy must be considered with the aim to maximize our global business. Because of this, we do not think just in terms of Japan.

  Also, while the price cut is said to surely increase demand, it must be clear from a variety of analysis so far that the effect cannot last very long. Accordingly, if we really do enact a price cut, it must be exactly when it can maximize the business. At least for now, I have no specific ideas about the price cut at all.

Q 3   Tell me about your view on third party software in this fiscal year. Due to good sales last year, the U.S. and European sales during January-March of this year were little below that of last year. As to your software plan in the latter half of the year which can regain sales momentum, are you mainly considering first party software? Or, are you expecting major third party titles for the plan? Will there be other software unknown to us now?
Also, the shipment forecast for DS software is less than last year. In Japan, the sales of Nintendo DS in the 4th quarter of last fiscal year ended up being the same level shortly before the launch of Nintendo DSi. You showed today the European figures from the UK, Germany and France. Are the European Nintendo DSi sales in the next month coming down to the same level of last year's Nintendo DS Lite sales? Are you expecting to launch Nintendo DS software that can drive demands for hardware in the latter half of this fiscal year? At when is the company planning to launch software that drives the Nintendo DSi sales?
A 3


  First of all, please understand that I am not in a position to comment on third parties software, especially when the lineup has not been announced by them.

  The reason why I said today that April, May and June sales of Wii will not reach last year's results but that the situation will change from summer this year was because the company has been preparing for several titles to be launched toward the end of this year that can drive the market.

  Since the software publishers, especially Western ones, are telling us that they will focus on developing for Wii, we are of course hopeful that they will launch additional titles of which I am not aware today. On the other hand, we must disclose our financial forecast by publicly confirming the company's plans with people in the market. We cannot unreasonably increase the expected shipment numbers by relying on software which may or may not be a great hit in the end, so these unknown software have not been taken into my consideration. However, there are possibilities that such titles can emerge, so we are hopeful.

  As for Nintendo DS, software in general had experienced an over-exuberant period when any software could sell well as long as they launched. Such an overheated period, of course, cannot last forever. As time goes by, the difference between software which sells and those that cannot becomes obvious. The software that could not sell can become redundant inventory at distributors and retailers.

  While there may be a different scenario if a brand new proposal that I am unaware of now would be made by software publishers and become hits, we have prepared our financial forecast based upon figures we were more certain of today. Accordingly, as the market is always changing, the opinion that calls our forecast rather conservative may be right.

  We still need some time before we can determine the sales ratio between Nintendo DSi and Nintendo DS Lite. In the U.S. and Europe, portable game machines can sell relatively well in June and first half of July. Sales last year during this period were high, and we expect the same level of sales this year.

  Nintendo is of course planning on launching software, and we expect the software publishers to make a variety of proposals, some of which will be appealing enough to attract new customers.

Q 4   Can you confirm that you are expecting a 40 million unit increase in Wii software unit shipment for the current fiscal year mainly with Nintendo's first party software?
A 4


  The company has never disclosed the breakdown between first and the third party software of our software unit shipment forecasts, but I can say that it would be a mistake to think that the increase of 40 million units will be wholly attributed to first party titles. However, we can say that we are expecting the whole market to grow because Nintendo is preparing for its software.

Q 5   Last year at this stage, I said that I was faced with severe memory shortages due to the lack of Wii's internal memory because I had downloaded more than 40 applications onto my Wii hardware between Wii Channels and Virtual Console titles. I'd like to first thank you for solving it at last. With that, I have seen your "Wii-no-ma" announcement on Nintendo Channel and noticed that President Iwata sounded like repeatedly apologizing in the video for the delay in software launches for this spring. Also, last time when I asked a question, we discussed the issue that Wii Music was not selling very well. During January to March this year, Wii did not perform well in Japan. In addition, we are now seeing a delay in software launches. Before that, there were some software with bugs. While I highly appreciate your apologetic attitude in the Wii-no-ma video and I believe that Nintendo's strategy is not wrong per se, I feel small mistakes are surfacing.
  What do you think are the reasons why such mistakes take place? Is it due to the lack of resources at the low-level of the organization? Please give me your analysis and the countermeasure.
A 5


  On behalf of the company I'd like to thank you very much for cherishing our products.

  First, when we used recorded video footage to hold a sort of an online announcement for "Wii-no-ma" and explained the concepts of "Wii-no-ma" for viewers, I talked about (the plan for Wii) in the former half of this year. My real intention was not to apologize but to make clear to the viewers that the company is openly accepting that there are problems in the current situation rather than deny them. We thought we should deliver our such message to the people who proactively access our sites to see such a video.

  Our Wii customers have kindly purchased our products by expecting new proposals to be made one after another. We must not be sitting back thinking that everything is fine because Wii is the best-selling hardware in the world today, especially when the company has not been able to fully meet their expectations,. Please understand that such a sentiment led to that part of my video presentation. I'd like to make clear, however, that we have not done anything immoral, so if your take away from that video was me repeatedly apologizing, please understand that I need to express my disagreement to your assessment.

  As for the small mistakes, no mistakes are supposedly allowed at least for home console game machines, but the truth is, the bar has risen higher each year. It would be a misunderstanding to say that there might be some loosening or delinquencies within Nintendo's organizations, that we are short staffed at the low-end level, or that the company is not spending sufficient time for testing and debugging as before. The energy that we are spending on testing our product before launch has remained the same. Due to the increase in products we are launching, we are putting much more resources than before as a whole.

  If anything, our know-how and approaches may not have fully caught up with the increasing complexity of our products. Accordingly, we have internally set up a flow in which we review why a mistake has happened, what could have prevented it from happening, when could we have prevented it, and so on whenever any issue arises so that we can learn from it and apply to the future in variety of ways. We are making efforts to prevent future recurrences of past problems.

  If you have included our inability to launch software in a timely fashion in the former half of this year as one of these mistakes, I have to express my disagreement to such a use of the term. Honestly speaking, whether entertainment software is good enough or not cannot be told until development nears completion. Even amongst the software created by Shigeru Miyamoto of Nintendo, some have turned out to be entertaining enough in line with the original development concept while some turned out to be lacking something in the end.

  One of the reasons why Miyamoto is highly praised is because of his ability to stop, rethink about, and fix how he can convey the appeal of a software when he finds out during the latter phase of development that the software will not be good enough. This is why the games he has worked on have a high batting average to produce big hits. However, he is not God and even Miyamoto himself cannot hit the mark every time nor always predict how long it takes to complete development. I believe my management job is to set parameters of the development timeframe, and with this uncertainty in mind, to plan our product launch timings without too much time between each one, but it is not easy to get this down perfectly.

  We are making efforts to not miss out on great opportunities. We are always searching for the next fun thing. With luck and some preparations, we hope to identify and catch these opportunities when they appear in front of us. However, no one can tell when these will comes to us, and it is inevitable that we may not always be able to launch our products at the most desirable timings.

  While it is always my goal to be able to build development plans so that the company can constantly provide the market with software that surprises consumers in meaningful ways one after another, it is easier said than done and the actual lineup is not always as I had imagined it. Having said that, we have found some seeds of the potential next fun things, and I hope to discuss them sometime in the future.

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