Nintendo cuts annual profit forecast on strong yen

TOKYO -- Pokemon, Mario and the Wii are as hot as ever, but the onset of a headstrong yen forced Nintendo Co. to prune its money-making ambitions Thursday.

The Kyoto-based video game and console maker cut its annual net profit forecast by nearly 16% because of the stronger Japanese currency, which erodes overseas earnings. It now predicts a net profit of 345 billion yen ($3.5 billion) for the fiscal year, down from the 410 billion yen estimated in August.

The outlook is based on an exchange rate of 100 yen to the dollar instead of 105. The yen recently soared to a 13-year high near 91 yen but has since eased to about 98 yen. Nintendo derives nearly 90% of its revenue from overseas markets.

With the downgrade, Nintendo becomes the latest Japanese exporter whose fortunes this year are at the mercy of foreign exchange rates. Flagship companies like Sony Corp., Toyota Motor Corp. and Honda Motor Co. have all lowered expectations, and others are expected to follow suit.

What sets Nintendo apart, however, is that the global slowdown hasn't dented demand.

Consumers may not be buying cars, but they're still standing in line for the Wii and the popular "DS" handheld device. Its focus on attracting nontraditional gamers such as women and senior has been a key to its stellar growth in recent years.

As a result, its numbers represent a relative bright spot in an otherwise bleak earnings season.

The company posted net profit of 144.8 billion yen ($1.5 billion) in the April-September period, up 9.4% from the previous year. Sales increased 20% to 836.9 billion yen ($8.6 billion), while operating profit surged 34% to 252.2 billion ($2.6 billion).

They figures also confirm that the gaming sector, which is generally insulated from economic swings, is managing to hold its own even amid the current severity, said Hitoshi Kuriyama, an analyst at Merrill Lynch in Tokyo.

The company sold 10.1 million Wii units worldwide during the first half, up 38% from last year, and it said it expects to sell 27.5 million this fiscal year through March 2009. It sold 13.73 million DS hand gaming systems, up 3% even though the device has been on the market for four years.