Michael Pachter, an analyst watching the video game industry for Wedbush Morgan, says that the recently launched Wii U home console from Nintendo could represent a long-term mistake for the Japanese company as long as sales do not improve quickly.
He tells NeoGAF that, “Nintendo is ensured high sales of its proprietary software, but it makes the most money on its royalty business, collecting fees from third parties for the privilege of letting them put out games on Nintendo platforms.”
“My call is that if hardware sales don’t materially improve above current combined levels, software sales are unlikely to materially grow.”
Pachter admits that Nintendo has about 1 trillion Yen, which is the equivalent of 11 billion dollars (8 billion Euro), in reserves, which it can use to absorb losses and develop the Wii U brand.
The problems that the new home console is facing are compounded by the fact that the handheld DS brand is also performing worse than expected.
The 3DS is at the moment below the sales marks set by the previous normal DS series at the same spot in its lifetime.
Pachter says, “If Nintendo doesn’t make a profit on hardware, they can’t afford to cut prices further. If they do cut price, it will likely occur as their manufacturing costs come down, but I don’t expect big hardware profits in the foreseeable future.”
The company has recently revealed a new series of titles for the Wii U, including games based on Luigi and Mario, which will be launched later during 2013.
Analysts are also expecting Nintendo to deliver a price cut for the console in order to make it more attractive to players and push sales up.
The company will most probably time its reduction in price to come just before Sony and Microsoft reveal and launch their next generation of consoles.