Wii Shortage: Shrewd Marketing or Flawed Supply?

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Inside the Wii's Guts

Many gamers and industry watchers have been left to speculate that Nintendo's guts -- the chips, CPUs, disk drives and the like -- are difficult components to come by and quickly assemble. (That was certainly the case for delays with the next-generation PS3, with its first-of-its-kind processor, Blu-ray Disc drive, 60GB hard-disk drive, Wi-Fi adapter, online connectivity and wireless controllers.)

A December 2007 EE Times article looked under the Wii's hood as well as at its packaging and assembling processes. "After taking a look at the components inside the Nintendo Wii after it was released, there was nothing revolutionary or advanced found within," writes Gregory Quirk. In looking at the "custom-made Hollywood CPU and Broadway graphics processor," for example, there was no reason that those parts should be in short supply.

Quirk speculates that, perhaps, packaging problems with the console could be one source of delay. "It is not a simple or cheap process to create a new set of molds in order to increase the number of shells produced, and the plant may not have the capacity to generate more shells even if it received additional molds," he writes. And making sure that the Wii's white color is consistent across production facilities is a critical -- yet not easy -- task.

Bruce Richardson, chief research officer at AMR Research, calls the Wii shortage a "curious" situation. He notes that one of the challenges that companies like Nintendo face is getting the "life cycle right: trying to get to profitability as you try to maximize manufacturing," he says. "This is really a timing issue where you can produce to demand and still make money, versus finally getting the economies of scale in manufacturing and distribution only to find out that the demand window is closed."

Still, Richardson, like many others, is left to speculate about something magical in the Wii's components. "There probably is something inside that box that's hard to produce in volume," he says, "because I don't think the rest of its contents is any kind of mystery."

The Dollar Crashes the Wii's Party

At the same time as Wii's popularity began taking off -- the Wii has set many new records for console sales that dwarf the competition -- the value of the U.S. dollar began tanking in worldwide markets. "When [Nintendo executives] priced the thing in fall of'06," Pachter says, "I don't think they expected the dollar to drop 20 percent against the yen."

And that is one reason, Pachter contends, why the Wii is in supply-demand balance in Europe and Japan right now, while the U.S. still has chronic shortage. "The dollar has been so putrid that it actually costs them profit," he says. "It's less profitable to sell the Wii in the U.S. than it is in Europe and Japan. So as long as demand is higher than supply, they would rather satisfy 100 percent of demand in Europe and Japan before satisfying demand here."

Pachter says that Nintendo has denied this claim. "They've called me to tell me I'm wrong," he says. (Nintendo media relations did not return a call seeking comment for this article.)

But the numbers don't lie. According to Pachter, the Wii has been in supply-demand balance in Japan since roughly six months after the Wii came out; it's been in supply-demand balance in Europe for the last year. "And it's been sold out here," he says. "It's clear from the numbers that they're starving the U.S. And they're not doing it to screw with us, they're just doing it because as long as they're going to be sold out, they'd just rather be sold out here."

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