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Sales up, profits down

Nintendo shows why launching a new console is a costly business

Nintendo has warned that its profits will be down for the 2001-2 financial year as a result of the launch of the GameCube. While the company is looking fairly strong after its showing at E3, all manufacturers take a loss on sales of their consoles, hoping to establish a large user base and then recoup the money through software sales over the life-time of the system. In Nintendo's case this loss is going to be pretty severe thanks to the GameCube's low $199 price tag in the USA and Japan.

According to the Japanese corporation, sales should jump from ¥460bn to ¥580bn (that's about $3.9bn to $4.9bn at current exchange rates) while profits slide from ¥97bn to ¥80bn (roughly $800m to $670m). Of course, this also includes the effects of the GameBoy Advance, which is already available in Japan and should be launching in Europe over the summer. Again, the hardware price tag is very low (most shops in the UK will apparently sell the hand-held for £79.99) while games will be relatively expensive.

It's hard to tell exactly how much Nintendo is going to lose on the GameCube launch, but it's likely to run into hundreds of millions of dollars. Meanwhile Microsoft is rumoured to be planning to lose $900m on the Xbox over its first year, with recent reports even suggesting that the entire Xbox project is a loss-making exercise to get Microsoft a toe-hold in the console industry ready for the next round in the console wars. And with console-related sales reaching upwards of $20bn worldwide, it's perhaps no surprise that these companies are all willing to spend big bucks to break into the market. The question is, will the market be big enough to support all of them?

Source - FT.com