Nintendo, according to some, needs to "drastically" alter its strategy. Wedbush Securities has now weighed in, and analyst Michael Pachter asserts that Nintendo's "Blue Ocean" strategy is simply "no longer working."
The mid-term financial loss and first ever projected annual loss serve to prove that "the Wii and DS have lost all momentum, and sales of the 3DS are not making up the gap," Pachter noted.
"The Blue Ocean that Nintendo had to itself is no longer blue, and without a clear first mover advantage, we do not expect the company’s fortunes to turn."
He continued, "It is clear that the Wii audience is slowly shifting to either HD consoles or to social games, while it is equally clear that mobile game sales are cannibalizing handheld game sales. We do not see either trend reversing in the foreseeable future, and think that Nintendo’s hardware and software sales will continue to decline until it launches the Wii U in calendar 2012."
"Nintendo does not have sufficient third party publisher support for its platforms. As Wii hardware sales have stagnated, many publishers are dropping SKUs for the platform. Similarly, the larger publishers, notably Electronic Arts, are more focused on social and mobile games, and have de-emphasized development of games for the Wii and DS."
As opposed to the Blue Ocean where Nintendo dominated with little competition, Pachter asserts that the company now finds itself in a Red Ocean teeming with sharks. Part of this is the ever growing threat of smartphones and other mobile devices.
"The DS and 3DS have come under assault by the proliferation of smartphones and the iPod Touch. Tens of thousands of free-to-play or $0.99 games have been offered for these devices, and as an increasing portion of the DS’s addressable market gets one of the devices, they are immediately offered an inexpensive alternative to the DS. We believe that as much as 30% of Nintendo’s addressable market will ultimately own an iPod Touch or a smartphone, meaning that the company will likely never see handheld hardware sales that approach its customary 25 – 30 million annual unit shipments from a few years ago," he said.
The other factor is the (possibly unfortunate) launch timing of the Wii U. "While we wait for the launch of the Wii U (which is coming at least two years late, in our opinion), Microsoft and Sony are likely hard at work on next generation consoles. While we don’t expect either to launch in 2013, both will be capable of doing so should they wish, and we think that each will monitor the success of the Wii U and factor that into their launch date decision. In other words, the Blue Ocean that Nintendo had to itself is no longer blue, and without a clear first mover advantage, we do not expect the company’s fortunes to turn," Pachter concluded.
