Wii U still flounders but Nintendo predicts full-year profits

Nintendo has presented another mixed financial report, publishing figures for the nine months leading up to December 31, 2014 which show dropping sales, increased profits and an ambitious full year profit target of ¥30 billion. Once again, the company's balance sheet shows considerable reliance on the exchange rate between Dollar, Yen and Euro.

Sales for the period, combining software and hardware across all lines, dropped by 11.3 per cent compared to the same period last year, totalling ¥443 billion. Nintendo's handhelds lead the charge, with 7.08 million "members of the 3DS family" sold worldwide - a figure Nintendo expects to leap upward once the New 3DS hits American and European markets. 53.04 million units of 3DS software went to consumers, although that may have slowed recently as customers wait for the big releases that will accompany the launch of the new hardware.

The Wii U, however, is still mired in mediocrity. Despite a crop of critically acclaimed releases, the console has managed a paltry 3.03 million sales since April last year, bringing lifetime sales to 9.2 million. Nonetheless, a relatively healthy 20.59 units of Wii U software were sold, showing a strong attach rate amongst the faithful. Just how long Nintendo can sustain that faith, and whether there remains the hope to instil it within others, is the company's key concern on the console front.

In a year-on-year comparison, combined hardware sales were down to ¥235 billion from ¥287 billion, with software dropping slightly less dramatically from ¥210.7 billion to ¥207 billion. Nintendo continues its slightly begrudging shift toward digital marketplaces with an increase in download sales of ¥3 billion to ¥21.1 billion from last year's 18 billion.

Despite all of this, profits for the nine months rose to a net total of ¥59.5 billion - a phenomenal sounding 483.7 per cent increase from last year's ¥10.2 billion for the same period. As a result, Nintendo is predicting its first profitable full-year result since 2012, with a projected target of ¥30 billion profit for the year ending March 31, 2015 - an upward revision of ¥10 billion despite missing nearly all of its sales targets.

"As a result of exchange gains totalling ¥51.0 billion due to depreciation of the Yen at the end of this period compared with the one at the end of the last fiscal year, ordinary income was ¥92.3 billion and net income was ¥59.5 billion."

One factor in the shift in that all-important figure seems to be Nintendo's vulnerability, for good or ill, to the fluctuations of exchange rates. As the report notes:

"As a result of exchange gains totalling ¥51.0 billion due to depreciation of the Yen at the end of this period compared with the one at the end of the last fiscal year, ordinary income was ¥92.3 billion and net income was ¥59.5 billion."

Further clarification can be found at in a statement accompanying Nintendo's separate forecast specific report.

"Based on the sales performance for the nine months ended December 31, 2014 and afterwards, net sales and operating income are expected to be lower than our original forecasts. Also, considering recent trends in foreign currency exchanges, assumed exchange rates for the fourth financial quarter as well as at the end of the full fiscal year have been revised as follows: ¥115 per U.S. dollar (previous rate: ¥100), ¥130 per euro (previous rate: ¥140). As a result, we have revised up the ordinary income and net income forecasts."

However, that market windfall isn't the sole factor in Nintendo's profit jump - in fact, last year's report noted a similar boost, alongside a prediction that this year would not see it repeated.

"As a result of exchange gains totalling ¥48.1 billion due to depreciation of the yen at the end of this period compared with the one at the end of the last fiscal year, ordinary income was ¥55.5 billion and net income was ¥10.1 billion," read the release from January 2014. "Also, we expect the yen to rise from the end of the third quarter to the end of the fiscal year, reducing exchange gains and ordinary income."

R&D expenses at Nintendo remained largely static at ¥44.8 billion compared to ¥43.2 billion a year ago, but advertising spend has dropped considerably, with this period's ¥44 billion budget shaving another ¥13 billion from expenditure when compared to the ¥57.6 billion spent in the nine months leading up to December 2013 - perhaps a result of the slugging match it faced with the launches of the PS4 and Xbox One.