Wii U Selling Under Cost; System To Be In Short Supply

By | 4 years ago 

Early last month, GameStop announced that it would be halting Wii U pre-orders and putting future customers on a waiting list. As of this writing, there are over 250,000 people on that list. What does this mean? Well, if you haven’t pre-ordered, you might not be getting a Wii U at launch – and possibly not for a while.

Shortages are predicted to hit the UK especially hard, and some retailers may not have enough systems to fulfill pre-orders. An unnamed retail source told CVG that only 25,000 units will be available in the UK at launch. Other retailers have revealed that they expect to receive between 75,000 and 100,000 units, though they are not sure if the systems will arrive by day one or “be distributed across a number of weeks.”

Strong launch day demand for Wii U is good news for Nintendo, but there is a complication: surprisingly, the system will be sold at a loss. Though that tactic is often used by competitors Sony and Microsoft, Nintendo has long been committed to selling its hardware at a profit (including the Wii and the pre-price cut 3DS), which lead us to believe Wii U would be profitable out of the gate. Nintendo President Satoru Iwata addressed the issue in the company’s Second Quarter Financial Results Briefing.

“In addition to the yen’s continuous appreciation, the Wii U hardware will have a negative impact on Nintendo’s profits early after the launch because rather than determining a price based on its manufacturing cost, we selected one that consumers would consider to be reasonable. In this first half of the term before the launch of the Wii U, we were not able to make a profit on software for the system while we had to book a loss on the hardware, which is currently in production and will be sold below cost. Our loss has therefore widened during the second quarter in spite of bringing the Nintendo 3DS hardware back to profitability. Although we expect our financial performance to be revitalized, under these circumstances, unfortunately we cannot say that we will achieve ‘Nintendo-like’ profits within this fiscal year.”

Despite the demand for launch day systems, Wedbush analyst Michael Patcher believes the Wii U won’t have as strong a future as early numbers suggest. According to everyone’s favorite analyst, Nintendo will have plenty of competition this holiday season, including other video game consoles and even tablets, both of which could take a significant bite out of the Wii U’s momentum. He also expects a price cut sometime in 2013.

“We believe the Wii U will quickly lose positive momentum from its launch due primarily to pricing. We believe there are already a number of cheaper, comparable alternatives. For example, the prices of the Xbox 360 Kinect bundles have been reduced by $50 at Amazon, GameStop, and Wal-Mart.”

“In addition, Nintendo will have to compete for wallet share over the holidays with mobile device makers including Amazon, which is introducing the Kindle Fire HD at a starting price point of $199, well below that of both Wii U sets, and Apple, which is introducing the iPad Mini at a price point of $329, below that of the Wii U Premium Set.”

It’s hard to see the Wii U setting the world on fire like the Wii did back in 2006, especially with how much the market’s changed these past couple years. That being said, the Wii U certainly isn’t doomed to failure. As the first next-gen console, the Wii U does have an allure among the “gamer” crowd, and that should keep it supported for quite some time. It’s when the PS4 and Xbox 720 are announced/released that the system will truly be tested, and we can only hope Nintendo has a strong software lineup to keep the momentum going.

The Nintendo Wii U launches November 18, 2012 in North America.

Follow me on Twitter @AnthonyMole.

Source: GameSpot, Nintendo [via Joystiq], CVG [12]

tags: Nintendo, Wii, Wii U