Nintendo expects strong second-quarter earnings

TOKYO - Japanese video game and console maker Nintendo Co. reports second quarter earnings on Thursday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Despite the global slowdown that has squeezed other Japanese exporters, demand for Nintendo's hit products remains robust.

In July, the Kyoto-based company raised its sales projections for both the Wii video game console and DS hand gaming device, which continues to sell briskly even after four years on the market. The Wii Fit exercise game launched in May is a big hit. And its new DSi model, loaded with a camera and music player, will appear stores in Japan this weekend and will be available overseas next year.

Nintendo's focus on attracting nontraditional gamers such as women and seniors has helped the company enjoy strong growth in recent years, and it expects second-quarter results to again reflect the fruits of this strategy. Demand in the gaming sector is generally not swayed by economic swings, but the severity of the current downturn and a stronger yen will likely slow momentum for Nintendo as well.

BY THE NUMBERS: Nintendo is forecasting a 165.0 billion yen ($1.7 billion) profit for the April-September half, up 24.6 percent from the same period last year. Sales are expected to grow 19.5 percent to 830.0 billion yen ($8.4 billion).

For the full fiscal year through March 31, 2009, Nintendo estimates net profit of 410 billion yen ($4.2 billion) on revenue of 2 trillion yen ($20.3 billion). Analysts surveyed by Thomson Reuters, on average, expect fiscal year profit of 406 billion yen ($4.1 billion).

ANALYST TAKE: Jay Defibaugh, an analyst at Credit Suisse, says he expects strong second-quarter results but warns of a deteriorating outlook due to the yen's appreciation and a more cautious consumer. "Nintendo's prospects for profit growth in (the next fiscal year through March 2010) are being severely undermined by recent yen strength," he said in a report earlier this month.

The yen will also likely pressure the company's projections this year, which are currently based on an assumed exchange rate of 105 yen to the dollar and 160 yen to the euro. On Wednesday, the dollar was trading at 96.65 yen, while the euro stood at 122.6 yen. Credit Suisse estimates Nintendo's foreign exchange losses at 52.5 billion yen ($533.4 million) in the July-September period.

WHAT'S AHEAD: Nintendo is bullish on the holidays and ramping up production of the Wii to meet current and expected demand. Analysts will be watching to see whether the company can provide adequate supplies to match consumer thirst. Next year, Nintendo should get a boost from new releases of third-party Wii titles.

STOCK PERFORMANCE: Nintendo shares have lost about half their value over the last two months amid steep declines in Tokyo equity markets. During trading Wednesday, the issue stood at 27,600 yen, compared with 53,700 yen on Sept. 1.

Credit Suisse maintained its "outperform" rating on Nintendo stock but reduced its target price to 59,000 yen from 69,000 yen. "We expect Nintendo's share price to bounce back once the stock market stabilizes," it said.

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