Wii Shortage: Shrewd Marketing or Flawed Supply?

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How Much Does the U.S. Shortage Actually Hurt Nintendo?

Even with the fluctuating currency issues, Nintendo is far outpacing its rivals in console profitability. A May 2007 analysis of the profit/loss derived from the consoles of Microsoft, Sony and Nintendo showed that Microsoft lost at least $126 per Xbox 360 unit and maybe as much as $300; Sony's PS3 lost $300 per console; and the Wii delivers a $92 of profit for each unit sold.

Nintendo announced in its most recent quarterly results that it had sold 5.2 million Wii consoles in the quarter, a 50 percent increase compared to the same period in 2007, and that profits jumped 34 percent. In Japan, however, Wii sales were cut in half. In total, Nintendo said that it had sold nearly 30 million Wiis since 2006.

Recent NPD Group data showed that since January 2008, Nintendo has sold 4 million Wii consoles, compared with Sony's 1.8 million PS3s and Microsoft's 1.6 million Xbox 360s.

So while Nintendo's financials look good overall, has the shortage affected the long-term prospects of the Wii in the ultracompetitive U.S. market? "Well, it depends on if you think that a loss sale of a Wii results in someone buying a competitive product or substitute, so they won't buy a Wii in the future," Pachter says. "And they [Nintendo] don't think so, nor do I."

In addition, because manufacturing costs are high, he adds, Nintendo appears to be reasoning that a "deferred sale" in the U.S. -- meaning that consumers will most likely wait for a Wii and eventually buy one -- is a strategy that's working quite well.

AMR's Richardson is less convinced. "I think you lose your lead-for every product that exists on the market they'll soon be a better version," he says. "In consumer electronics, you've got to be very fickle and pay close attention to the product lifecycle. You have to take a much more holistic approach from linking all of that demand sensing back to supply planning. And if this stuff is all coordinated inside Nintendo, it doesn't appear that way in the U.S. market."

So when will the U.S. shortage end? Nintendo pledged in mid-2008 to increase manufacturing capacity over the summer to meet the ongoing demand. It plans to sell 25 million Wiis during its upcoming fiscal year (which ends March 2009). Pachter expects Nintendo to manufacturer around 27 million consoles.

But, he adds, "It's just a question of when are they going to start showing up."

This story, "Wii Shortage: Shrewd Marketing or Flawed Supply?" was originally published by CIO.

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