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Analysis: Nintendo’s 3DS Announcement

Nintendo's 3DS announcement looked at from a business perspective with emphasis on the financial consequences of launching spring 2011 instead of Holiday 2010.

Yesterday (29/09/2010) Nintendo announced new details on its 3D handheld, the Nintendo 3DS. The 3D enabled but glasses-free mobile console will launch February 26th 2011 in Japan and in March that year in Europe and North America.

In congruence with the details on the handheld announced, Nintendo has downward adjusted its revenue prognoses for the current financial year. Analysts have jumped on the announcement with mixed outcomes, some describe the situation as a ‘worst case scenario’ whereas others see it more positively than that.

Announcement details

Besides declaring a launch window, Nintendo enclosed a number of other details including price point. The Nintdendo 3DS will cost ¥25,000 ($298 / £188/ €219) at launch. This is a rather high price compared to the launch price of the original Nintendo DS (¥15000) back in 2004.

However, when first announced, Nintendo CEO Saturo Iwata already declared that the company will make a profit on the handheld. Unlike competitors Sony and Microsoft who apply a razor-razorblade model, Nintendo traditionally has been making a profit on its hardware.

Nintendo also announced a number of new specs and features of the handheld such as a portable Virtual Console offering Game Boy/Game Boy Color games and the inclusion of six AR (augmented reality) cards.

Analysts’ view on the announcement

The Nintendo 3DS was slated for the current financial year ending March 31st 2011. The spring release announcement is therefore not so much of a delay rather than a surprise. Many analysts were anticipating a holiday 2010 release.

Nintendo, who readjusted its revenue prognoses downwards now already a few times, could have used the 3DS in the revenue packed holiday season to compensate. In addition, the fact that the handheld will launch in all three geographical territories in a very short period of time is remarkable. Will the traditionally Japan-oriented company be able to meet demand in the Western territories?

Judging from the above, it is so not strange that some analysts have negative opinions on Nintendo’s announcement. The setting described in the announcement, referring to the high price point, missing the holiday season, the possibility of constrained hardware shipments to the Western territories, and the downward adjusted revenue prognoses has been described as a ‘worst case scenario’ for the stock value of Nintendo.

On the other hand, others are more optimistic about Nintendo’s announcement. The high price point is justified by the diverse character of the handheld comparable with iDevices and tablets in terms of functionality. Furthermore, delaying the release by three months enables 3rd party publishers to ensure a strong line-up of tailor-made games for the 3DS.

An early 2011 launch seems therefore like a good thing. Nintendo has never been particularly gifted with a strong 3rd party games line-up at launch of new consoles. As such it would not be the first time that a Nintendo console fails commercially in part due to a lack of strong 3rd party games.

Postponing the launch of the 3DS buys Nintendo the time to ensure a strong line-up of quality launch titles. Besides, this holiday season is already packed with both Sony and Microsoft launching motion controller based technologies for their home consoles. Any handheld would have a difficult time fighting the marketing dollars of these conglomerations.

Future forecast

In any case, Nintendo needs to step its game up with the 3DS. Mobile gaming is evolving, social gaming is on the rise and Apple has left a permanent mark in the mobile gaming industry.

And while the industry is changing, Nintendo stays behind in terms of an online business model. Something the company’s CEO has admitted and said that it needed improvement in order to face competition. In such a volatile industry, contingency and innovation is extremely important for a company that wants to lead rather than follow.

Nintendo has confidence in its product. The company expects to sell 4 million pieces of hardware until the end of March 2011. Additionally, in approximately one month time Nintendo expects its customers to buy three to four games for the systems translating into 15 million pieces of software sold.

Nevertheless, the financial sector’s initial reaction to Nintendo’s announcement has been nothing but negative as the company’s stock value dropped 9.34% on the Osaka Stock Exchange (OSE). Part of this exchange behavior will be due to Nintendo’s downward adjusted revenue prognoses for the current financial year.

The actual impact of the anticipated Nintendo 3DS on both the games industry as well as the financial sector will become clear spring 2011.

*this post was previously published on Strategy Guide (www.strategyguide.nl)

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