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Five years of hardware declines leave Nintendo weakened
by Matt Matthews on 01/30/14 11:54:00 pm   Expert Blogs   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

Nintendo is stuck in a really tight spot. The Wii U hardware is profoundly unpopular with consumers, and software support is fleeing. So while it rides out this storm, Nintendo will need to rely on sales of the Nintendo 3DS.

But Nintendo's 3DS business is already in decline, so even that source of revenue is getting smaller.

Before I get to the handheld side, let's take a look at the console business.

Nintendo's Console Shipments

I put together some figures to show you just how long this has been going on, and just how much Nintendo's core business has shrunk. For example, at its peak, Nintendo was shipping 26 million Wii consoles per year. Take a look at the trajectory since that time.

Note that these are annualized rates, so each point on the curve represents total shipments in the trailing-twelve month (TTM) period.

It only took two years for the Wii to ramp up from zero to 26 million consoles per year. Then in the four years from that point until the Wii U launch, Nintendo watched the sales rate fall to a mere 7.5 million systems per year.

Normally at that point, the new console would push hardware sales back up again, and that's certainly what many of us expected with the Wii U. But after a reasonably strong holiday season, the Wii U saw its sales fall to laughably low levels. For nine months, combined Wii and Wii U shipments held approximately steady, but then shipments of the Wii tapered off during the last three months of 2013.

In all of calendar 2013, Nintendo shipped a mere 4.3 million consoles. As the graph above shows, that's only a million units above annual GameCube shipments in September 2005.

Nintendo's Handheld Shipments

So, yes, Nintendo's console shipments have fallen 80 percent in the past five years. Let's look at where their handheld hardware business is going.

The corresponding figure for Nintendo's handheld shipments is shown below. This includes the entire lifetime of the Nintendo DS, and everything for the Nintendo 3DS so far.

The 3DS launched well, and then stabilized once the price was reduced a few months later. But as soon as the 3DS XL was released, annual shipments have been declining.

It's tempting to think that the 3DS is doing fine and that all the decline can be attributed to the dying Nintendo DS, but that's not actually the case. The 3DS saw its annualized sales rate peak at 15.5 million systems per year in September 2012. It's now fallen to 12.9 million systems per year.

Europe is Lost

That global shipments graph above hides something important about the dynamics, a regional aspect that shows that Nintendo has seen its support erode overseas.

If we break out the three key regions that Nintendo uses for its data -- Japan, Americas, and Other (mostly Europe) -- and graph the shipments precisely as above, the graph looks like this.

You'll note that in each region the Nintendo DS peaked at a different time. Roughly speaking, it peaked in Japan in early 2007 and then during the 2008 holiday season in Europe. Top sales in the Americas happened one year after that, during the 2009 holiday season.

Also, when the 3DS launched in early 2011, it breathed some life back into the Japanese market. While it never reached the peak achieved by the Nintendo DS, it did top 6 milliion units in a single year during 2012.

In the other regions, that recovery never happened. In the Americas, there was a tiny pop when the 3DS launched but the trend has been mostly downward since that time. In the Other region, here I consider it a proxy for Europe, the 3DS stabilized the market for about a year, but then after the 2011 holiday season its sales fell below 8 million systems per year and are now just below 4 million.

The loss of Europe must be particularly painful for Nintendo. When we look back over the entirety of the Nintendo DS lifetime, the world outside of Japan and the Americas accounted for 40 percent of that system's shipments.

Compare that to the situation with the 3DS, which is pictured below.

Japan accounts for 37 percent of all 3DS shipments so far, up from a mere 21 percent for the Nintendo DS. Instead of the Other region being the leading one, it is in fact the smallest of the three.

How Many More Iterations?

Which brings me to the next question: What, if anything, will Nintendo do to revive the handheld business? Within two years, the company will probably be ready to launch a new handheld system and until then there is time for Nintendo to consider one more revision of the 3DS hardware.

However, the history of the Nintendo DS shows that these new iterations are less effective as time goes on. Here is the full breakdown of lifetime Nintendo DS shipments into the four models: the original Nintendo DS, the Nintendo DS Lite, the Nintendo DSi, and the Nintendo DSi XL.

The Nintendo DS didn't really take off in the marketplace until the Nintendo DS Lite was available, and unsurprisingly that model accounted for over 60 percent of the system's sales. The next iteration, the DSi, added another 18 percent, while the larger Nintendo DSi XL added another 8 percent. 

If Nintendo has similar plans for the timing of the 3DS (and we can't really know -- Iwata's presentation a day ago didn't really address their plans for the 3DS) then there may be another model within the next 12 months. Then a year after that, the company could be ready for a new system.

The 2DS just launched, and while it did fairly well in the short period it was out, the 3DS family is just still only holding fairly steady in terms of annualized sales rates. That is, the 2DS helped maintain momentum but didn't push the platform's sales rate ahead very much at all.

And Now They're Stuck

And that brings me back to my starting point: the Nintendo Wii U is suffering badly in the marketplace, and Nintendo's handheld business may have peaked for the current generation of hardware. While Nintendo pursues its new projects in the health and quality of life market, the base on which its entire business is built continues to shrink.

 


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