Caught Short

The consumer electronics industry is no stranger to the concept of hardware shortages. They are an inevitability of any market where the most desirable products are often the most difficult to manufacture in bulk, and where the launch of a product can follow six months to a year of hype - resulting in barren shop shelves, disappointed customers and acres of newspaper coverage.

By any standards, however, the ongoing shortages of Nintendo's Wii are remarkable. In general, consumer hardware supply starts to match demand within a couple of months - an effect most commonly seen with Apple's iPods, which whip up huge queues and a media frenzy with each new launch, but can generally be picked up with little trouble from any electronics retailer six to eight weeks later.

Videogames consoles, as a rule, follow the same pattern. Launch day is a sell-out, accompanied by crowing press releases pointing out that this console is the fastest-selling in the market's history, just like the one before it and the one before that. Subsequent weeks see a trickle of stock that doesn't quite satisfy the pent-up demand from consumers who hadn't reserved a launch console in time.

Within eight weeks, things generally settle into a nice, consistent pattern, with plenty of stock in the channel and only occasional panics in the months before Christmas to keep retailers on their toes. Sometimes this takes a little longer, if the platform holder has managed to royally mess up its production and supply - as Microsoft did with the Xbox 360. Sometimes there are no real shortages, when the platform holder rolls out an incredibly healthy day one supply and grossly over-estimates demand, as Sony did with the PS3.

Never before, however, has a platform holder managed to leave stock of its console on the verge of drying up for a full year after launch - with dire warnings that the holiday season we're now entering will be a complete bun-fight for anyone hoping to pick one up.

So yes - the Wii is a remarkable case. It's not entirely unique, of course, and those retailers and commentators who are reacting angrily to the idea of another massive stock shortage throughout the holiday season are clearly blessed with short memories that have forgotten that the PS2 faced similar shortages every Christmas for years.

However, the low stock of the Wii in the channel throughout the entire year - arguably made even more surprising by the fact that the console has had remarkably few big software launches in 2007 - marks this situation out as being different to the PS2.

For many people, the shortages raise questions - and conspiracy theories - about Nintendo's strategy. After all, the Wii is arguably the easiest of the "next-gen" consoles to manufacture, with components that are far from cutting edge - a far cry from Sony's expensive and restricting reliance on Blu-ray and Cell components, or from Microsoft's ongoing problems with building effective heat dissipation into its console.

As such, it seems reasonable - on the face of it - to expect that the Wii should be available in much larger volumes than its rivals. In the face of continuing shortages, consumers and retailers alike have accused Nintendo of deliberately restricting supply in order to build the perception that the console is in great demand, and win mainstream media coverage.

It's not an entirely unreasonable accusation. Consumer electronics companies know the power of supply shortages from a marketing point of view; a device which is in demand to the point of being sold out is a device which garners media attention and raises the curiosity of consumers.

However, while companies are certainly guilty of milking this phenomenon for marketing purposes, it's a bit of a stretch to imagine that Nintendo - or any other firm - would wilfully restrict its sales and installed base in order to achieve this effect. The marketing impact is important, certainly - but not remotely as important as the company's desire to boost its sales as much as possible.

Indeed, as disappointing as it may be to conspiracy theorists, the reason for the Wii's ongoing shortages lies in two far more simple factors - firstly, the runaway success of the console itself, and secondly, Nintendo's own caution over the dangers of overstocking.

The console's success is a matter of public record, but it's all too often overlooked in debates over hardware shortages. Since its launch, the Wii has consistently outsold its next-gen rivals - recording around double the sales of either the Xbox 360 or the PS3 in most weeks.

In part, this is down to the slow sales of those rivals - whose much vaunted next-gen punch-out is presently looking a bit like a half-hearted fight between two overweight, asthmatic old men. Even by the standards of previous successful consoles like the PS2, though, the Wii is doing spectacularly well - so it's arguably no surprise that Nintendo, whose most optimistic predictions didn't allow for their sudden catapulting back to the forefront of the console market in such dramatic style, is struggling to meet demand.

That struggle is exacerbated by the fact that the company is incredibly cautious about expanding its manufacturing capacity. Nintendo has historically been a financially prudent company, one of the industry's only refuseniks from the "razors and razorblades" model that sees its rivals absorbing huge losses from hardware sales in the early years of a console's lifespan, and a champion of keeping costs low across its hardware and software strategies.

Bringing new production facilities on line is not a cheap exercise, nor is it a particularly speedy one - and it's worth recalling that Nintendo's existing production facilities already had their work cut out for them in keeping the DS Lite in stock around the world, even before the Wii's success piled on additional pressure.

Nintendo's fear must be that if it were to open additional production lines, it could find itself trapped operating manufacturing resources that it doesn't need in six months time. Demand for the Wii will almost certainly even off at some point - and neither we, nor Nintendo, nor anyone else knows whether that point will be in six months time, 12 months time, or three years time.

Ramping up manufacturing based on that uncertain future is anathema to Nintendo's legendary financial prudence. Those with sharp memories may recall that a mistake in this area has already cost Nintendo dearly; in 2003, the firm was forced to halt production of the GameCube for several months when it became clear that supply channels around the world were over-filled, and supply was far exceeding demand.

GameCube hardware filled warehouses for months, while production lines lay dormant; the firm received a stiff financial reminder of the dangers of over-production, as well as a very public humiliation, and it's unlikely that its executives have forgotten any of the sting of that lesson.

The net result is that Nintendo is likely only to ramp up production significantly when it anticipates that demand will hold steady; the firm has no intention of being left high and dry with unsold stock. What that means for retailers in the coming months is that once again, consumers are going to face a struggle to get hold of Wii hardware in the run-up to Christmas.

Despite the frustration this will cause, there's no conspiracy here. Neither, however, is there an end in sight. Nintendo will always be happier when its supply is undershooting demand by a small margin - so unless demand for the Wii slumps sharply for some reason, it's unlikely that the channel will ever be fully stocked, and supply woes will continue to some degree. As woes go, however, it seems churlish to complain too much; for Nintendo, and the industry as a whole, it's the best possible problem to have.