Faced with rapidly declining sales and a less enthusiastic than expected reception to its newest handheld gaming device, Nintendo has confirmed that it will be releasing a successor to the Wii in 2012.
A prototype of the new device, which has been rumored for the past several weeks, will be unveiled at E3, the video game industry's annual trade show in June.
The announcement came as Nintendo announced its lowest operating profit in five years. The company had a net profit of 77.6 billion yen ($946 million) in its just completed fiscal year – a 66 percent drop from a year ago. Revenues were down 29 percent to 1.01 billion yen ($12.3 million).
Wii sales have been flagging over the last two years as prices on high definition systems like Microsoft's Xbox 360 and Sony's PlayStation 3 have fallen and high definition television sets have become more commonplace in people's homes. Nintendo has been under pressure for some time from analysts and investors to become more competitive on the high def front.
The company announced plans for the new system, which it dubbed a "successor" to the Wii, in a short statement issued in conjunction with the earnings. It declined to give further details about how the system would differentiate itself from the Wii and existing competitors.
"As for the details of exactly what it will be, we have decided that it is best to let people experience it for themselves at E3," said Satoru Iwata, Nintendo's president and CEO. "So I won't talk about specific details today, but it will offer a new way of playing games within the home."
The fact that the new console will be playable at E3 surprised some in the industry, who noted that could indicate a launch in the first half of 2012.
If true, that would be sooner than some were expecting it, but still not soon enough for everyone.
"Nintendo waited too long," says Wedbush Securities Michael Pachter. "The drop dead date they should have done this by is last Christmas. I think, essentially, they're simply coming up to speed with this generation. … Remember, there's already 8 million (PlayStation) Move (controllers) out there and 10 million Kinects. … Nintendo has already lost the opportunity to sell 'Wii 2' to 6 or 7 million households, who have upgraded."
Life to date, the 5-year old Wii has sold 86 million units.
The 3DS, Nintendo's new handheld gaming system (that shows games in stereoscopic 3D without the need for special glasses) had what the company called a "smooth" start – but fell short of expectations. The system sold more than 3.61 million units, a bit short of the 4 million units Nintendo had forecast.
The 3DS sold 9.43 million software titles – with two titles selling over 2 million copies each.
The competitive landscape for handheld gaming is the roughest one Nintendo has ever faced. Apple has taken an increased share of portable game software sales rapidly, which has hurt Nintendo. Flurry Analytics estimates the company's share of the market has fallen from 70 percent to 57 percent over the past year. And the holiday season, the stakes could raise again when Sony introduces its next generation portable system.
Still, Nintendo remains optimistic about the 3DS, saying it expects sales to improve, which could help offset any decline in revenue from Japan, following last month's devastating earthquake and tsunami.
Regarding those disasters, the company said it is still attempting to determine the impact on its operations.
"The aftermath of the Great East Japan Earthquake is unpredictable," the company said. "Nintendo has not suffered any direct damage which will significantly alter our production. However, it can be predicted that there will be an indirect impact form individual consumption patterns or economic conditions in the future."