Analysis of Nintendo (NTDOY)

Even before the announcement last week of Sony (SNE), it seemed almost certain that the domination of society in the PlayStation 2 video game consoles generation would give way to a much more level playing field for PS3 generation. This time, Sony faces a much harder competition both Microsoft (MSFT) and Nintendo (NTDOY).

While the Nintendo name is most closely associated with a video game platform (NES), the real objective of the company has always been the games rather than the platform. Here lies the true distinction between Nintendo and its two larger rivals. Nintendo plans to make good games. Microsoft and Sony seek to control a distribution channel.

Nintendo is the only company among the three console makers that began life as an entertainment company - and it shows. Microsoft is known for software; Sony is known for hardware; and Nintendo is known for games.

US players are familiar with the Nintendo brand; but US investors usually know very little about the company. This is unfortunate because, despite all the attention given to Sony's operations and video games Microsoft, Nintendo is the ultimate pure video game company.

Nintendo is great. American society than video game giant Electronic Publishing Arts (ERTS) in sales, profits and market capitalization. At last count, some might argue that Nintendo only has a market capitalization greater than EA, because the stock price has risen sharply compared to last year, while EA's stock price actually decreases. Nintendo has a market value greater than Electronic Arts, because Nintendo (company) is worth more than EA (the company). The increase in share of Nintendo may be entirely due to improved investor perceptions of the company's future prospects due to the good press around the island soon to be released Nintendo, the Nintendo Wii.

Regardless, this increase in the share price Nintendo was justified by the very low value, the market had already put on Nintendo's business. Nintendo is an interesting company to write about from an investor point of view for several reasons. The company operates in an exciting industry with excellent long-term prospects. Nintendo has been a good steward of its intellectual property. Nintendo is one of only a few companies in this situation. Nintendo several such properties. For this reason, Nintendo has more in common with companies like Disney (DIS) and Lucasfilm with manufacturers of consumer electronics.

Nintendo is an entertainment company; not an electronics company. Sales of the console are inextricably linked to game sales. Sales of equipment for a large part of total sales of Nintendo; However, hardware sales do not drive a large part of total sales of Nintendo. Nintendo, the games sell consoles. Of course, the console itself can affect the gaming experience in its role of platform. For example, the console itself should be a differentiator gameplay when Wii launches later this year. Publisher partners to support the Wii has been the subject of much debate and speculation. Nintendo consoles have received under third-party support than competing consoles, because Nintendo has been less willing to work with others on your terms.

Games must be designed around the Wii. In the past it was easier for third parties to offer titles for Nintendo consoles, without targeting that particular console. Nintendo launched the Nintendo Entertainment System (NES) in 1985, the Super Nintendo Entertainment System (SNES) in 1991, the Nintendo 64 (N64) in 1996 and the GameCube in 2001.

To add injury to injury, the number of games sold per console was declining until the GameCube dramatically reversed this trend.

Here are the number of games sold per console for each of the four systems:

NES: 8:08 games

SNES: 7.72 games

N64: 6.84 games

GameCube: 9:05 games

Game Cube

The GameCube number above is particularly interesting because sales of GameCube games in the Americas has been extraordinarily strong considering its modest installed base compared to previous Nintendo consoles had benefited.

The Americas account for 58.37% of global sales of GameCube units while Japan accounts for only 19.14% of global sales. If a difference of 10 games in 7 games per system to system does not seem so important, it is a much greater difference in the number of games sold per system between geographic regions than exists with other current Nintendo platform. Accordingly, the Americas account for nearly two out of three games sold for the GameCube.

Nintendo DS

At first, it seems that the situation is reversed with the Nintendo DS. Japan accounts for sales of both DS games and own mobile platform more than 4 out of 10.

Game Boy Advance

Nintendo Game Boy sales have always been quite impressive. The Game Boy Advance, which was released in 2001, sold over 75 million units and more than 325 million games. This does not include the sales of the various Game Boys 20th century (the original released in 1989), which have sold over 100 million units and 500 million games.

The Game Boy has helped Nintendo's financial results because it was a much more consistent artist. Take part in the "console wars" is expensive, time consuming and risky Risks are paid in advance;.

 
Financial Performance

Given the industry in which it operates, Nintendo was a strong performance. The cycle life of each product is unnervingly similar to the life cycle of a fruit fly.

Conclusion

Apparently, most Japanese players now believe that the Nintendo Wii will come out on top in this round of the console wars. What about Nintendo as an investment? There are two major problems: the Wii and handheld games.