WITH A LACK OF NEW BLOCKBUSTERS, NINTENDO STOCK FALTERS

OSAKA, May 08, 2009 (AsiaPulse via COMTEX) -- NTDOY | Quote | Chart | News | PowerRating -- Dogged by market perceptions that sluggish domestic demand augurs slower global sales, Nintendo Co. (TSE:7974) stock remained in the doldrums Thursday despite the all-time-high earnings it announced that day.

The results for fiscal 2008 were in fact impressive. Even though currency fluctuations took a toll on earnings, sales leapt 9.9 per cent on the year to 1.83 trillion yen (US$18.5 billion), while pretax profit grew 1.8 per cent to 448.6 billion yen. Despite the global economic slowdown, efforts to tap first-time gamers are proving a success. And the company expects pretax profit to jump 11 per cent to 500 billion yen this fiscal year.

Yet the market was not satisfied. Nintendo shares closed at 26,600 yen on Thursday, down 30 yen from last Friday.

Consensus is growing in the market that earnings will peak in fiscal 2009 , given the slowdown in the domestic gaming market, which is generally considered a leading indicator for trends overseas.

At home, sales of Nintendo's blockbuster Wii game console slumped 47 per cent to 2.06 million units in fiscal 2008.

And in February, Square Enix Holdings Co. (TSE:9684) announced it would delay the next installment in its popular "Dragon Quest" series for the Nintendo DS hand-held system. The launch of "Dragon Quest IX," which had expected to reignite the domestic market, was pushed back almost six months from late March.

"There is now a void in the software market because a host of developers tried to avoid going head-to-head with Square Enix this spring," says an official at a top developer.

Nintendo President Satoru Iwata admits a managerial misstep in allowing a vacuum in new-software releases.

On the hardware front, no new products with the potential to be the next big thing are in the offing. Nintendo launched the revamped DS last November to blunt the slide in sales. And despite growing anticipation of a next-generation full-sized console, Nintendo has no plans to release one, because the "appeal of simple improvements, such as better graphics processing and storage capacity, is waning," Iwata explains.

But Iwata bristles at the suggestion that the company's earnings peak is about to pass. "It's a mistake to use the Japanese market to read future trends in overseas markets," he insists.

Iwata does have a point. Growth in the U.S. and European gaming markets is driven mostly by increased demand for Nintendo-related products. And the firm generates roughly 90 per cent of its sales overseas. In addition, there is potential for the U.S. and European market to double, since less than 10 per cent of their households own gaming devices. Unlike Japan, there are no signs that consumer enthusiasm is on the decline for video games.

According to research firm Enterbrain Inc., Nintendo claimed the top four hit software titles in the U.S. and the U.K. last year. This shows that "software popular in Japan, where consumers are most selective, sells well overseas," Iwata points out.

So with Japan positioned as a test market, the lack of buzz domestically is cause for grave concern.

For gamers, hardware is a kind of investment. And the key to the success of hardware demand is whether continuous releases of popular titles can spark demand for gaming devices.

In addition to "Dragon Quest IX," releases scheduled for the second half of this year include the next iterations of "Wii Sports" and "Monster Hunter," a major hit among schoolchildren.

"But since these are merely sequels, it remains to be seen whether they result in hardware purchases," warns Takeshi Koyama, an analyst at Mizuho Securities Co.

Question marks hang over Nintendo's ability to come up with revolutionary software like "Wii Fit," which upended conventional views of video games. Such doubts are reflected in the company's soft stock price.

(Nikkei)

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