Michael Pachter has clarified his earlier comments about the Nintendo Wii U.
The Wedbush Morgan analyst said that Nintendo “misfired on the Wii U, and made a mistake they probably can’t recover from”, and after online criticism to his comments, has taken to NeoGaf to explain his comments.
“My comment about the Wii U being a ‘mistake’ from which the company ‘may not recover’ was intended to say that if Wii U sales don’t materially improve, Nintendo is unlikely to be profitable. They have around $11 billion in cash, so they aren’t in danger of going out of business for decades. However, if they aren’t profitable, they aren’t doing a good job for shareholders.”
“Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms. My call is that if hardware sales don’t materially improve above current combined levels, software sales are unlikely to materially grow.”
Pachter also warned that low January sales could cause third-parties to avoid the system, citing Grand Theft Auto V’s absence from the console.
“If software sales don’t materially improve, losses or break even will become the norm. Nintendo will not ‘recover’ to its formal highly profitable glory. I have spoken to several publishers who are skeptical, and I think that the Wii U will see a lower level of third party support than the Wii did, unless sales materially improve. If I’m wrong, I’ll admit it, but without third party titles, Nintendo will not generate its customary levels of royalties, and losses or break even could become the norm.”
Pachter also gave a breakdown of Nintendo’s financial performance, explaining that the 3DS is nowhere near as profitable as the DS, despite matching it’s sales records.
“If Nintendo doesn’t make a profit on hardware, they can’t afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don’t expect big hardware profits in the foreseeable future.”
“They are stuck with software profits, and at current sales levels, they are unlikely to make an overall profit from software.”