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Is Nintendo’s Wii U Problem Terminal?

The company once dominated consoles, but the Wii U is a disaster and smartphones continue to eat into 3DS sales

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We’ve written about Nintendo (NTDOY) frequently over the past year as the former video game powerhouse has struggled. It was hit hard by the rise of casual mobile gaming on smartphones and tablets, forcing it to slash prices on its 3DS handheld. It beat Sony (SNE) and Microsoft (MSFT) to the punch by a full year with the Wii U next generation game console, but not only failed to capitalize on that head start, it fell flat on its face.

A bad situation has deteriorated rapidly. Last week, the company released a revised financial forecast with slashed sales projections for all its hardware en route to an expected annual loss of $240 million and a 17% hit for NTDOY.

Wii-u-ntdoy-stockHow bad is the situation for Nintendo?

The company anticipated selling 9 million units of the Wii U game console between April 1 2013 and March 31 2014 — a period during which Nintendo had more than seven months as the only choice for consumers shopping for something more advanced than the Wii, Playstation 3 or Xbox 360. Instead, Wii U sales tanked and Nintendo now expects it will have only sold 2.8 million, despite a $50 price cut in September intended to boost interest in the lead up to the PS4 and Xbox One launches.

To put things in perspective, In the two months since its release Sony’s PS4 has sold more than 4.2 million units.

Nintendo also cut sales estimates for the 3DS (from 18 million to 13.5 million) and the original Wii console (from 2 million to 1.2 million). Along with the hardware slump, software sales have also taken a beating: the company expected to sell 38 million Wii U on the year, but has since revised that number down to 19 million.

When it cut prices last fall, Nintendo was already losing money on every Wii U it sold — there’s no room for trying to boost sales through discounts. Third-party game publishers were already wary of the unusual hardware design, and they’ve stayed away in droves as sales have failed to materialize and Nintendo has failed to address The Wii U’s general lack of online multiplayer gaming.

And while the 3DS has been a successful product, there are clouds on the horizon in the form of physical controller accessories for Apple’s (AAPL) iPhone and iPod Touch — the first of which are now on the market.

Smartphones were already eating into Nintendo’s mobile gaming market, but the iPhone 5s is more powerful, sports a larger and higher resolution display than Nintendo’s offering and console-quality games like Infinity Blade for iOS are going for five bucks or less (compared to $30 or more for 3DS titles). Smartphone competition is likely a large reason why 3DS sales forecasts were also slashed.

So, what’s Nintendo to do?

Article printed from InvestorPlace Media,

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