NEWS - Thursday, January 23, 2003

Nintendo announces new console

Nintendo Eyes Next-Generation Console Launch KYOTO, Japan (Reuters) - Nintendo Co. Ltd., creator of "Pokemon" video games, said on Thursday it planned to launch a next-generation home game console in 2005 or 2006 in a move to restore its clout in the lucrative home video game market. "We are developing a new home video game console with a plan to release the new system around the same time as rival makers do," President Satoru Iwata told Reuters in an interview. Industry veteran Nintendo, which has fallen well behind leader Sony Corp and vies with newcomer Microsoft Corp for the number two spot in the console market, suffered poor sales of its flagship GameCube console during the crucial holiday shopping season. In contrast, Sony said this month it had sold 8.5 million PlayStation 2s during the shopping season, up 24 percent from a year earlier, and that accumulated shipments topped 50 million units worldwide. Iwata, who took over in May from the charismatic Hiroshi Yamauchi, said the GameCube console would miss its sales target of 10 million units by over 10 percent this business year and GameCube software sales would fall short of a 55-million-unit goal. "The PlayStation 2 debuted one-and-a-half years ahead of the GameCube. If we had launched the GameCube at the same time as PlayStation 2, the result would have been different," he said. "We will get ready for a (new) battle in 2005 although foreign game developers are now saying that rival next-generation systems won’t come until 2006." As a part of its effort to revamp its home console business, Nintendo plans to release new Pokemon games for GameCube which will enable users to play the game on the Game Boy Advance, too, by transferring the data back and forth between the two consoles. "Our focus for 2003 is to offer new types of games which allow consumers to play both on the GameCube and Game Boy Advance," Iwata said. Iwata did not rule out the possibility of slashing the price of the GameCube console, which he said ranked number two in the global home console market, but he said action was not imminent. MISSING PROFIT TARGET? Analysts said the poor performance of its GameCube operations, especially in high-margin software sales, and the yen’s rise against the dollar were expected to weigh on the game exporter’s profit for this business year. Hit by the strong yen and slack demand for its game systems, Nintendo in October slashed its net profit forecast for 2002/03 by 11 percent to 80 billion yen ($676.2 million), based on an exchange rate of 123 yen per dollar versus the current 118 yen. For Nintendo, which holds hefty foreign-currency-based assets, each one-yen drop in the dollar trims 3.5 billion yen from non-operating profit, in addition to the negative impact on operating profits in yen terms, analysts said. Iwata agreed that the yen’s current level was a negative factor but said it was too early to revise profit forecasts as the Game Boy Advance’s performance was solid and new Pokemon games due in North America in March should give it a boost. As worries mount over the GameCube’s outlook, Nintendo shares fell this week to 10,090 yen, the lowest in nearly four years. They have fallen 50 percent over the past year, underperforming a 15 percent decline in the benchmark Nikkei average and in the industry index Iwata said that he was not satisfied with the stock price. "Given the slumping Tokyo stock market as a whole, it’s not only Nintendo’s problem. But it’s my duty to bring good results to investors," Iwata said. Nintendo, which bought back 4.65 million of its own stock during the October-December period, would buy back shares when the stock fell excessively, but it needed to raise profits in its core business to shore up the price over the long term, he said. Investors want to see new ideas before pushing the stock up. "Nintendo’s GameCube is way behind Sony’s PlayStation and looks to lose out to the (Microsoft) Xbox as well, and with no new products in the pipeline, it’s hard to see where the growth will come from," said Takehiko Takachio, senior portfolio manager at Kokusai Asset Management. "But Nintendo is still a company with great development capabilities, and I don’t think the GameCube is going so bad that they will have to follow the road that Sega took in withdrawing from hardware," he said. Iwata dismissed speculation that the company would eventually abandon home console production. "When we withdraw from the home game console, that’s when we withdraw from the video game business," he said.


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