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Financial Results Briefing for the 74th Fiscal Term Ended March 2014
Q & A

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Q 1

For the fiscal year ending in March 2015, I understand the Wii U hardware sales unit forecast is 3.60 million units. I would like to know about the relationship between this number and this fiscal year’s Wii U hardware production plan, and its impact on profit and loss. Some other things you explained today are the utilization of various network services of the Wii U platform and game-compatible figurines. In the past, I believe Nintendo’s philosophy, in principle, was that interesting and unique software drove hardware sales. I would like to confirm whether this idea remains the same.

A 1

Satoru Iwata (President):

We set the sales unit forecast of 3.60 million units of Wii U hardware as the target that we should at least reach by making the releases of two key titles for this fiscal year from the very popular, evergreen franchises that have been under development since before the launch of Wii U hardware, “Mario Kart 8” and “Super Smash Bros. for Wii U,” the pillars of our entire marketing strategy for this year. These two titles can be enjoyed alone or with others, and we believe they will encourage those who do not own Wii U hardware to purchase it. With respect to the impact of Wii U hardware sales on profit and loss, in order to sell 3.60 million units, we have to produce some more hardware units on top of our current hardware inventory. However, since the loss arising due to the hardware production costs being higher than our trade price was taken into account in the previous fiscal year, you could assume that there will be almost no loss this fiscal year for the sales of the 3.60 million hardware units.

As to whether our philosophy has changed or not, the basic idea that consumers reluctantly purchase hardware only because they want to play with appealing software remains unchanged. I only mentioned the Wii U software “Mario Kart 8” and “Super Smash Bros. for Wii U” today, but of course, we are going to talk about other Wii U titles at E3 (Electronic Entertainment Expo) in Los Angeles in June. Also, our internal software development teams directed by Shigeru Miyamoto (Senior Managing Director and General Manager of Entertainment Analysis & Development Division) are committed to developing several titles that focus on offering unique experiences only made possible with the Wii U GamePad in order for a large number of people to understand the Wii U GamePad’s significance. The titles we are preparing to show you at E3 vary from being nearly complete to still in the early phases of development but with the core of its appeal noticeable. Therefore, our strategy of focusing on software has not changed.

As for utilizing character figurines, Activision has released video game titles from the Skylanders series over the past three years and Disney Interactive released the software title, “Disney Infinity,” last year. Both video game series are compatible with character figurines and have created an extremely large market for these products. In the overseas markets especially, a huge amount of space has been allocated to those product lines at retail stores with a large market presence. Our primary focus, however, is not to develop software that is compatible with figurines. Rather, we have been developing figurines since last year because we believe there may be different approaches or ways to appeal to consumers by using them, and this could also be one way for Nintendo to utilize its character IP. At the Corporate Management Policy Briefing in January this year, we talked about our policy of actively utilizing character IP imagining that we would be able to show you the actual NFP product, which I mentioned today, at E3. However, when we talked about actively utilizing character IP, people were only focused on to whom and how licenses would be granted. So today, I decided to talk about our own project. Still nothing has changed in our belief that, for video game platforms, hardware is driven by software and our basic approach of developing new, unique and incredibly interesting software has not changed at all. We will work hard to meet your expectations.

Q 2-1

In your presentation, you made it clear that in this fiscal year Nintendo would prioritize restoration of the balance of revenue and expenses. My question deals with the company’s mid-term prospects. I would like Mr. Iwata to tell us his current thoughts on what he would like the following two terms (the fiscal year ending March 2016 and the fiscal year ending March 2017) to mean for the company. Given that Nintendo already made a significant devaluation of inventory in the previous fiscal year, I suppose you are envisioning that the financial performance of the company is set to recover by some extent this fiscal year, but what are the key factors that will drive the business from the next fiscal year? Or, do you think that investment will expand yet again from the new businesses in and after the next fiscal year? Please tell us how you would expect the company’s financial performance to change from the next fiscal year.

A 2-1


With regard to this fiscal year, I feel that it is essential for us to restore the balance of revenue and expenses that has been lost temporarily in order to gain trust in the financial markets. On the other hand, while it is difficult to talk about the next two fiscal years using concrete figures, I feel that in the next fiscal year we will be able to be more specific about the kinds of mid-term projects that we discussed at the Corporate Management Policy Briefing in January, and in fact, we will even start to offer some of them to the public. In the following fiscal year, I expect some of these measures to start serving as a source of profits for the company. In this sense, instead of seeing a great and sudden recovery in our profitability in the next fiscal year, I am rather expecting to be able to report Nintendo-like profits from around the following fiscal year.

Q 2-2

The company has set multiple measures for its mid-term future, but I think that sometimes it is necessary to make a big investment while maintaining a sound revenue-expenses balance. From this perspective, I would like to know whether you have set any priorities.

A 2-2


While I believe that increasing the long-term corporate value of the company is naturally our most important task, as it is impossible to make that our sole priority without regard to the short-term revenue-expenses balance on an annual basis, I think it is necessary to make investments while maintaining a certain balance of revenue and expenses. However, in terms of when we will be able to regain Nintendo-like profits, I would ask you to give us a bit more time and see how we do in the following two years.

As for our focus, we are already going to utilize, for example, our character IP from this fiscal year in ways that I described in my presentation today, so it is perhaps easier to see relatively early on the actual content of this new business endeavor and understand more clearly what we are going to do with it. Also, regarding what I mentioned at the Corporate Management Policy Briefing in January about our efforts to go into a new business area, namely our platform business that seeks to enrich people’s QOL (Quality of Life) in enjoyable ways, I would like to talk more specifically about the kind of business we have in mind within this year, and the current time frame we are working on puts the actual deployment of the initiative in the next fiscal year, with contributions to our profitability to follow in the following fiscal year. Moreover, I feel that we will be able to further stimulate our platform business by taking advantage of smart devices, and I think that we will be able to provide detailed information on this as well as some concrete results between the current and the next fiscal years. Also, the idea I mentioned about redefining the definition of video game platforms will also require approximately two years. This is how we would like to talk more about our mid-term measures and lead them to actual results. However, we will not be able to create a good environment for the company unless projects are undertaken simultaneously, so this is the kind of timeframe that we have in mind.


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