Nintendo, the world's leading gaming company by machines sold, said it will post an operating loss for a second straight year as the sales of its Wii U, successor to the 100-million selling Wii, faltered.
The company caught investors off guard by predicting a loss of US$220 million in the year to March 31, reversing a profit forecast for the same amount, putting its new guidance well short of a consensus estimate of US$133.48 million profit from 19 analysts.
The grim outlook came even as a weaker yen provides a boost for a company that sells almost three quarters of its products outside Japan.
"It was a somewhat negative surprise," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
Nintendo, which began by making playing cards in the late 19th century, is counting on the Wii U to revive its fortunes as sales of the six year-old Wii slacken.
The latest offering from the creator of Super Mario faces competition from Apple Inc and other makers of mobile phones and tablet PCs that are attracting gamers with cheap or free games.
"The sales of Wii U were smooth at the beginning but since the turn of the year they have been losing momentum," Nintendo President Satoru Iwata told reporters in Osaka after revealing the loss forecast. He blamed the lacklustre performance on a dearth of games titles to woo players back.
"Due to delays in software development, we had to postpone sales of software products we had planned to (release) early this year, which is interrupting our sales," he said.
Nintendo lowered its sales forecast for the Wii U, launched in the US in November, to 4 million consoles by the end of March from a pre-launch estimate of 5.5 million, and cut the sales outlook for its handheld 3DS by 2.5 million machines to 15 million.
In November it launched the Wii U, its first console in 16 years to come with a dedicated Super Mario game title.
The performance of the Wii U, which features a "Gamepad" controller that functions like a tablet, and a social gaming network dubbed "Miiverse", will be closely watched by XBox maker Microsoft and PlayStation maker Sony Corp as both mull plans for updated versions of their consoles, say analysts.
As Nintendo's hardware business suffers, software sales are also dragging. The company slashed the annual sales forecast of Wii U software by 33 percent to 24 million units and that of 3DS software by 29 percent to 70 million units.
"We have been prepared to see weak sales forecast for Wii U as its sales performances in various regions have been widely reported. But it was negative to see a lower forecast for 3DS software as it is one of the company's main sales drivers," said Sakuma at Bayview Asset Management.
Nintendo has so far resisted offering Super Mario and its other iconic games on tablets, smartphones or other platforms.
Iwata indicated that Nintendo will stick with its in-house strategy. The company, he said, aims to return to operating profit of more than 100 billion yen in the next business year with a splurge of new software titles.
Before the earnings announcement, Nintendo's shares fell 2.1 per cent to 9350 yen, edging back toward the decade low of 8500 yen touched early this month.