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Analysts Worry About Waning Wii Growth

Though Nintendo's profit forecast cut is largely down to exchange rate, some analysts are worried that "the roaring pace of Wii growth that we’ve seen until now may be over." [UPDATE
Considering Nintendo's market-dominating performance over 2008, the company's reduction of its profit forecast by one third is coming as a "worrying" sign to some analysts. Although the company attributed the gap primarily to the strong yen, it also reduced its forecast for Wii sales by one million for 2008 -- and KBC Financial Products analyst Hiroshi Kamide told the UK Times that it could be a sign that the Wii rush might be past its prime. The reduced profit forecast "suggests that the roaring pace of Wii growth that we’ve seen until now may be over," Kamide said. "The numbers also imply that we are going to see a sudden collapse in the fourth quarter from record margins to some of the thinnest margins Nintendo has experienced for three years." Despite the forecast reduction, Wedbush Morgan analyst Michael Pachter expects the company to stay "solid" in the coming year. "The lone weak spot for the company remains Japan," he observes. "We expect 13 percent software sales growth in the U.S. and European markets in 2009, but expect the Japanese market to grow only 1 percent." Pachter says Wii year-over-year performance is down by more than a million units over the past nine months. And even though the install base has grown 40 percent year over year, software sales are only up 3 percent. The failure of software sales to keep pace with the growing install base is Kamide's largest area of concern, too. In any event, Kamide told the UK Times that the forecast reduction means "[Nintendo knows] something big has gone wrong, and that people are not buying the machines." [UPDATE: A Reuters report notes that Nintendo shares have slipped 12%, their maximum allowed on the Japanese stock exchange, on concerns that its profits for January to March may be two-thirds smaller than the previous year. Respected Japanese analyst firm Nomura Securities gave a contrasting tone to Kamide's comments, however, noting to its clients: "Although economic conditions are bad, we think the company's (annual) forecasts are too cautious... We think Nintendo is under-appreciated as one of Japan's top-earning manufacturers."]

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