Excellent article on market position of big 3 makers

[Bronty-2]

http://www.buzzcut.com/article.php?story=2005053122342247

I really enjoyed this and agreed with a lot of it. There's a link for part 2 at the end of part 1.

[hezeuschrist]

That was an excellent read as were some of the articles linked within. Really though, just confirms what many people should already know.

[NoahsMyBro]

Where's Part 2 ?

I couldn't find it, nor anything that suggested there even is a Part 2.

[petewhitley]

The points about Nintendo making smart business decisions in the direction of profitability are good. But the insinuation that Sony and Microsoft will fight themselves to death and out of the gaming business has little-to-no basis in fact or the history of this industry. They may not reach the profitability of Nintendo for some time (if ever), but there is no realistic reason to expect that the industry cannot support two major players as it has in the past. If anything, as it stands today Nintendo is most at risk for an exit from the home console market, due to their extremely limited market share and the fact that they derive far more profit from their handheld products. Not that I think that will happen, but it's more plausible than the scenario offered in this article.

[Cmtz]

But the insinuation that Sony and Microsoft will fight themselves to death and out of the gaming business has little-to-no basis in fact or the history of this industry. They may not reach the profitability of Nintendo for some time (if ever), but there is no realistic reason to expect that the industry cannot support two major players as it has in the past. If anything, as it stands today Nintendo is most at risk for an exit from the home console market, due to their extremely limited market share and the fact that they derive far more profit from their handheld products. Not that I think that will happen, but it's more plausible than the scenario offered in this article.

Here's a first. I have to agree with this. Nintendo is the one that is risking more right now. If Nintendo survives this generation either Microsoft or Sony will be there for the next fight and the next and next.

[hezeuschrist]

The points about Nintendo making smart business decisions in the direction of profitability are good. But the insinuation that Sony and Microsoft will fight themselves to death and out of the gaming business has little-to-no basis in fact or the history of this industry. They may not reach the profitability of Nintendo for some time (if ever), but there is no realistic reason to expect that the industry cannot support two major players as it has in the past. If anything, as it stands today Nintendo is most at risk for an exit from the home console market, due to their extremely limited market share and the fact that they derive far more profit from their handheld products. Not that I think that will happen, but it's more plausible than the scenario offered in this article.

Did you not read the whole thing? Every aspect of their business is profitable, simply because it's not as profitable as another portion of the business is absolutely no grounds to remove it. That simply doesn't make sense.

They make an assload of money on pretty much everything they do, and all they have to do is keep doing what they're doing. Market share is completely unimportant if you remain profitable. I don't understand why people can't get that.

As for Sony and MS fighting themselves to death, the analogy is valid. Sony and MS spending huge dollars to oust the other is a great way for Nintendo to quietly get some advertising, and for free no less. They certainly won't go so far as to oust themselves from the business, ever, but it's a smart move on Nintendo's part to just stay out of the way.

Ever play an FPS game online and see two people fighting, and hesitate for a few seconds to let them whittle eachother down and then try to kill them both? Except Nintendo isn't trying to kill either of them. Same concept, but look at it like this: One of those two players is dead, the other is wounded, and you're at full health. Thus, they remain profitable and are no worse for the wear. They didn't take the chance and they continue to make money hand over fist, while both of their major competitors are forced to market and advertise aggressively.

[Bronty-2]

I do and don't agree. Sure, nintendo's got some risk of being pushed out, I guess, and that part of the equation is not well explored in the article. But his whole point in writing the article was that Nintendo is reported as being in a much weaker position in the marketplace than they actually are. Are they subject to risks? Sure, all three makers are. But to say that a war between microsoft and sony has little or no basis in fact is to ignore what's already in front of you. Microsoft's losing money to try to take sony's market share as we speak.

[crazyjackcsa]

I agree with hezeuschrist, you must have missed the part in the article that said Nintendo was making money, Just because they don't make as much withe the cube doesn't mean they don't turn a profit. And no company would axe a money making proposition. Personally I would say that that Microsoft is in the biggest trouble in the home console market. Why? Well the original didn't make money, if the 360 doesn't make money then what? How long will stockholders allow a company to continue to lose money? 2 generations? 3? 4? There has to be a limit to it, until the stockholders decide to sell and Microsoft is forced out of the market. Now if the 360 turns a profit this generation or can offer "intangible" benefits, well then I't s different story but this generation is probably make or break time for Microsoft.

[Bronty-2]

well said hezeus.

[Bronty-2]

I agree with hezeuschrist, you must have missed the part in the article that said Nintendo was making money, Just because they don't make as much withe the cube doesn't mean they don't turn a profit. And no company would axe a money making proposition. Personally I would say that that Microsoft is in the biggest trouble in the home console market. Why? Well the original didn't make money, if the 360 doesn't make money then what? How long will stockholders allow a company to continue to lose money? 2 generations? 3? 4? There has to be a limit to it, until the stockholders decide to sell and Microsoft is forced out of the market. Now if the 360 turns a profit this generation or can offer "intangible" benefits, well then I't s different story but this generation is probably make or break time for Microsoft.

I think ms might have one generation beyond this one to prove profitability. But you're absolutely right, Bill's only going to put up with it for so long.

[Bronty-2]

Where's Part 2 ?

I couldn't find it, nor anything that suggested there even is a Part 2.


http://nintendoinsider.com/site/EEEZuAypVuTuOJPzyb.php

[hezeuschrist]

I doubt even that. If the Xbox Division isn't turning profits by 2009, they'll axe it.

[MrRoboto19XX]

Very well written, with many good points.

Im going to sound like a fanboy, but knowing Nintendo's history (even before they got into videogames) I wouldnt be surprised if what he said about then leading the next generation in 10 or so years became true.

Sony seems to be at an odd point on all of its fronts now, although their products are still quality, the "Its a Sony" tagline of the past doesnt seem to cut it like it used to.

Maybe its just me, but Microsoft always seemed like the Roman Empire to me. Theyre incredibly powerful, but I can honestly see them come to ruins unless they change something. I realize my being a mac user makes this seem like a fanboyish statement. Dont get me wrong, we owe a lot to microsoft as far as modern computer usage goes.

Good Read.

[petewhitley]

Did you not read the whole thing? Every aspect of their business is profitable, simply because it's not as profitable as another portion of the business is absolutely no grounds to remove it. That simply doesn't make sense.

They make an assload of money on pretty much everything they do, and all they have to do is keep doing what they're doing. Market share is completely unimportant if you remain profitable. I don't understand why people can't get that.

As for Sony and MS fighting themselves to death, the analogy is valid.

Actually, I don't think you understood my post. I'm NOT saying it's realistic to expect Nintendo to exit the home market; I'm simply saying that of the three Nintendo is in the more precarious position when it comes to the home market (something in direct contrast to the scenario the author presents). Market share is in fact important if you remain profitable, as the gross profits you bring in are in direct proportion to the amount of market share you have. If Nintendo's market share in the home console market continues to shrink, at some point the expenditure of resources would be better spent in the handheld market, especially in terms of profitability.

The analogy of Sony and Microsoft fighting themselves to death is not valid, as it does not have any historical basis nor is either company even remotely close to doing so.

[petewhitley]

I doubt even that. If the Xbox Division isn't turning profits by 2009, they'll axe it.

This is unlikely as well, as Microsoft in particular is unique in that they expend serious money in a variety of directions that are not profitable, if only to ensure that they are not squeezed out of potential future technological markets. As the leading tech company in the world, they have a huge vested interest in having their fingers in as many pots as possible. Even at the risk of losing money. Microsoft has a track record of doing this, and I don't know why anyone would expect them to change.

[hezeuschrist]

I don't see how anyone can think that anyone but Microsoft is not in the most "make or break" situation for their company (strictly game speaking). If the 360 doesn't perform well enough or capture as much of a market, or the market doesn't grow as much as they're banking on, they continue to lose money and will most assuredly axe the Xbox program. A percentage of that share instantly goes to Nintendo, no matter how you look at it.

Sony isn't in any major trouble, they just need to keep riding on their success and the fanboys will prevail.

And no, Nintendo's profitability is not in direct contrast to their market share. Would they be making MORE money if they had more market share? Sure. Would they be making less money if they had less market share? Sure. But would their net margin decrease, or increase? Not likely. The numbers will be different but the percentages will stay the same. Nintendo is likely the most business savy of the three in the market, and considering this they will be able to adapt to whatever the Revolution brings them, they'll be able to continue to turn a dime on it, especially considering they're not fighting the technological supremecy race.

As for fighting to the death, it happens all the time in every market, ever. In every facet of life, there's always someone waiting to capitalize on a weakend foe.


Further, you watched as Sega bet the farm on the Dreamcast and lost. You understand the opportunity and risk of ambition.

And then Sony ate them.

Thats the exact position Microsoft is in right now. They've bet the farm on the 360, and if it can't turn a buck for them right now then they're screwed, and Xbox goes the way of the dodo.

Now why the hell would Nintendo want to take a bunch of financial risks right now and risk losing a portion of their profitability when Microsoft is in the need of being the aggressor to gain market share?

[crazyjackcsa]

Personally, I see the Nintendo strategy as the smartest. If the revoultion comes in way cheaper than the PS3 and the 360 (as its rumoured to) Then I can see Nintendo gathering a huge market share as the second system in the house. In two system households a lot of people I know have an Xbox and a Gamecube, or a PS2 and a Gamecube but not a lot of people have a PS2 and an Xbox.

And I agree that Microsft is willing to dump a lot of money into the Xbox name just to keep the door open on future profits, but they won't do it forever. If the 360 loses money on every front without offering any benefit, ie, increased exposure of Microsofts software, hardware or brand, they will eventually dump it. Maybe not completely, maybe they will intergrate the Xbox name more and more into the exsisting "Media Center" Strategy, but already I think you can see that Live is becoming less about Games and more about "Entertainment" and "Community"

[smork]

Actually, I don't think you understood my post. I'm NOT saying it's realistic to expect Nintendo to exit the home market; I'm simply saying that of the three Nintendo is in the more precarious position when it comes to the home market (something in direct contrast to the scenario the author presents). Market share is in fact important if you remain profitable, as the gross profits you bring in are in direct proportion to the amount of market share you have. If Nintendo's market share in the home console market continues to shrink, at some point the expenditure of resources would be better spent in the handheld market, especially in terms of profitability.

The analogy of Sony and Microsoft fighting themselves to death is not valid, as it does not have any historical basis nor is either company even remotely close to doing so.

The precedent is there in alot of other industries -- look at the airline biz for one example. Most of the major airlines in the US are in business now due to goverment bailouts -- they consistently expand to markets where they can't make a profit, price their products to keep market share, but lose money, etc... Look who does make money in the airline biz -- Southwest? Continental? Not exactly the largest airlines in the country -- in fact, I think the number 5 and 7 airlines. But they are profitable, because they have a strategy that is safe and generates consistent revenues, while the big boys flail at each other to try drive each other out of business.

But Nintendo would only need to consider leaving the home console market if and when their gross profits start to slip below their gross revenues. Considering they were profitable throughout this generation with a console that was a) largely ignored by 3rd party developers b) cost 30-50% less than it's competitors c) only had a ~10% market share, it would be hard to imagine what further conditions they would have to endure to not be profitable. Only things I can see are either not making a quality product anymore or taking a huge financial risk on a higher-cost console. But if they keep to their current strategy it's hard to imagine how they won't succeed.

[petewhitley]

The precedent is there in alot of other industries -- look at the airline biz for one example ...

But Nintendo would only need to consider leaving the home console market if and when their gross profits start to slip below their gross revenues.

The airline industry is so vastly different in terms of structure and federal regulations you simply cannot compare it to the gaming industry. Not to mention your example is one of smaller companies being profitable; is anyone in this discussion even arguing that? I'm not, let's drop it. And I can't speak for Nintendo, but it makes perfect business sense to abandon a product with a smaller following to focus resources on a product with a larger following, even if both are profitable. But again, I don't see it happening. You guys are talking like I'm of the opinion Nintendo is going out. The point is that they're closer to leaving the home market than Microsoft or Sony for any reason at this point. This is something that's been discussed on these very boards a multitude of times to at least some consensus. It's amazing how quickly people forget.


Thats the exact position Microsoft is in right now. They've bet the farm on the 360, and if it can't turn a buck for them right now then they're screwed, and Xbox goes the way of the dodo.

C'mon man; Microsoft has the money and the drive to ride out the console wars for multiple generations. It's astonishing to me that you think this would be their swansong, when they've shown with both actions and words that they are in the console race for the long haul.

[Tan]

first off i just want to say what an interesting debate this has become.

secondly i just want to raise a few points for consideration here:

MICROSOFT:
Microsoft is here for the long term, people don't realize how determined they are to bring sony down, the xbox isn't just a game machine to steal market share, it's also a way for them to springboard different products into the consumer market.

this is the same company that has 95% of the PC OS market. xbox media center, xbox live, friends list, msn integration with xbox live, and other things which will no doubt further benefit windows in future products. not to mention peripherals that will compete with other household brands such as the hd-dvd add-on.

their greatest weakness right now is assembly line blues, they need to get as many systems out there as possible to soften the blow the other two will no doubt bring, and they desparately need the Japanese market to do it.

NINTENDO:
it's been 10 years since Nintendo held the #1 spot, the Revolution is a major risk that they hope will pan out like the DS has. the vast majority of Nintendo's profits come from handheld sales, putting a new console out that breaks tradition signifies their hunger for a bigger chunk of the market, they won't stand by while sony quadriples them in sales again. Iwata himself said if the Revolution doesn't sell more than the gamecube they will consider it a failure.

just because profits are up doesn't mean everything is peachy. if they can't expand their marketsize they'll stagnate and shareholders will lose confidence and their stocks will plummet. Nintendo is the one who needs a big turnaround the most, and their online service for the Revolution will either make or break them. Microsoft and Sony can back out gracefully and continue with their other products, but Nintendo's future depends on the gamng industry.

SONY:
myself like many others have already seen the signs that sony has gotten lazy, "it's lonely at the top" so they say, what they are doing now Nintendo did those 10 years ago when they rode on the snes for bit too long and made some bad decisions with the n64. Sony like nintendo will succeed or fail based for the most part on online gaming, as xbox live has become a sort of standard to which other services will be judged. worst case scenario for Sony is that they will lose the majority of the marketshare, but their fanboys and diehards both as gamers and devs will sustain them until they can get their feet back from under them if need be.

/end of ramblings :P

[Diatribal Deity]

I think these articles and this thread are missing the most important factor and that is which target market is growing and which is shrinking. To say that Nintendo is targeting the same group as Microsoft and Sony would be a stretch if not false altogether. Microsoft and Sony are primarily technology driven companies that have to be at the forefront flexing their muscles. This image is important to their shareholders.

Look at Google who just announced a >80% increase in their business as well as tremendous growth in profit. Yet their stock drops 9%. This is because the expectation was not met. What the industry and investors look for in Microsoft and Sony is vastly different than Nintendo. We've known this for a while now.

Microsoft has a particular interest in market share at this point because it is swimming in money (look at their distribution of dividends in the past year). Their shareholders are not looking specifically at profits at this point, they are looking at emerging and potential markets.

We know the Sony story as they are essentially up against the ropes (in regard to their overall business model). They have the most to lose in the next generation battle.

[Nature Boy]

I like the article, but part of me reads it thinking the author *is* a Nintendo fanboy. Maybe I'm too used to people in this hobby *being* fanboys and I can't see objective criticism anymore for what it is, which is a shame...

He mentions, in part 1, that the GBA Micro was a brilliant decision and that he thought it would do *fantastic* (or something to that affect).

When comparing this sort of strategy to Nintendo's competitors, I see no mention of the PSone or PStwo, and I'm curious how much money *they* make/lose in the whole argument. It's got to have the same sort of impact that a redesigned GBA does, for the same sorts of reasons.

[Ed Oscuro]

Interesting posts between Hezeuschrist and Petewhitey.

I gotta agree with Pete; Microsoft has been throwing money around to ensure that other people don't take over a market before they can get a foothold. This is totally different than Sega, whom didn't have a leg to stand on when the Dreamcast failed. Sega had no choice but to retreat from the market.


[The author] mentions, in part 1, that the GBA Micro was a brilliant decision and that he thought it would do *fantastic* (or something to that affect).
I see what you mean In the grand scheme of things, the appearance of the PStwo was a very recent event (10/2004), but apparently not recent enough to matter for him...though I wonder how much money the PStwo would've made for Sony.

I find it somewhat ironic that the reviewer starts out the article by saying "You’re as likely to find good Neo-Marxist feminist game criticism as you are in depth analysis of the medium as a business," but is totally devoid of references for the facts and figures bandied about.

[Bronty-2]

I think people are forgetting the main point of the article - that nintendo's just doing fine financially and that there's no need for the deathwatch some people partake in when they're making a ton of money doing what they do.

Whether sony or microsoft stay or go is kind of irrelevant. The point is that while they wrestle for control of the top-end $500 console market, nintendo can do just fine in the $200 market putting out quality titles for a quality little system.

[Bronty-2]

D'oh.. triple post.

[Bronty-2]

triple post!

[Nature Boy]

Whether sony or microsoft stay or go is kind of irrelevant (to the immediate discussion, anyway). The point is that while they wrestle for control of the top-end $500 console market, nintendo can do just fine in the $200 market putting out quality titles for a quality little system.

Actually his first point is that there isn't enough discussion on the pure business elements of the industry, but then he seems to cover nothing but the fact that Nintendo turns a profit.

I agree with the former, but it's the direction he goes that makes me think he's a fanboy (plus my rule that anybody who feels they have to *say* they're not a fanyboy probably is one)

[Bronty-2]

Oh there's no doubt in my mind that nintendo is his favorite company. But most of his points are well argued.

[Bronty-2]

By the way, nintendo's financials just came out for the first nine months of the year. They made $800 million. X_x Half of that is a foreign exchange gain, so it's kind of inflated, but still... they're on track to make a billion this year.

[Bronty-2]

oh and interestingly enough, apparently the gamecube is the hardware they make the best margin on, even at $99, from the sounds of it X_x . They must be able to turn one of those suckers out for $60 or $70.

[googlefest1]

I, as im sure everyone else is curious about how all of this will play out in the next few years but i have a question that i would like others opinions on

Sony - being the monster company it is has a large gamut of resources to keep thier costs down - especialy R&D and i don't think Nintendo or Microsoft can compare.

so even if nintendo stuns sony with a scisor kick and microsoft tries to finish them off with a tombstone don't you think Sony has the will and confidence brought on by the encouragement from Mr. resourses siting in thier corner to try and pull a hulk hogan comeback

im just thinking that if things turned out equal inbetween all companies that sony could out perform the others in terms of profits. As an engineer i know sony as a tehnology maker. they make thier own chips, they have thier own industrial design (ID) group WITH thier own rapid prototyping machines that they make them selves. they have thier own manufacturing machines that they make them selves. On top of that what ever they come up with they try to sell every where. there are parts in the PS2 that im positive exist in other products and is sold to other companies to use in thier products so the total cost is spread out all over the place. They also make a killing takeing ideas and designes from other companies (becasue if you want to deal with sony they give you only a one year nondisclusure agrement before they start selling your ideas to everyone else)

I don't think i made any clear question here - hmm ill try another road

I watched the program on G4 about how the 360 came about - and i was horified to see all the iterations of the chassis they had (haveing an idea of howmuch it costs to hire one company to come up with one iteration). Im sure the guy talking said that each one of those designs came from a diferent company - i was thinking to my self " how many units does MS need to sell to break even". - Im sure MS has thier own ID group set up also but i dont think they have thier own prototyping capabilities so that cost must have been huge. I think its the same for nintendo also - even though i dont think nintendo goes nuts making all kinds of ideas.

since sony has the capability to spread the cost around and keep the costs low by being able to make it all them selves wouldnt you think that this company would stick around for a while even while getting slaped around by nintendo and MS

i like that there are 3 systems it makes it more fun for me -sure i would be more happier if we also had a sega system but it would be a downer to see another company go away from this market.

based on what little i know - out of the 3 companies i think MS is in the worst position. I think they spent a ton of money bringing the 360 to life and if it dosent work this time around i think they will spend alot more the next time around. Since i dont belive MS has any kind of manufacturing capabilities aside from the assembly houses they put together thier initial costs are great. Nintendo on the other hand i think is in the second worst position becaue thier inital costs are higher too but not as high as MS. I think nintendo does thier own ID but has thier ideas made outside and since nintendo has been around for a long time i think they have some kind of manufacuting capability other than assembly. Finaly, i think sony is in the easiest spot to weather out a storm becasue of thier enormus R&D and manufacturing capability along with being able to spread costs around buy using parts of products in other product lines. I think these guys are here to stay. AS much as i like MS being in the market i don't think they have good ringside manager. If MS is able spread into other tech markets quicly then i think they May have a chance but sony has a big head start.

MS and nintnedo have some catching up to do

so after reading all of this - do you think sony would be willing to keep fighting in the game market even if they have been pushed into the rear by thier competitors just becasue of the resourses they have to help absorb the financial burdens

PS. another monkey wrench - i have a feeling that if sony would indeed get beat up by MS that japanese game publishers would run to nintendo before MS - especialy if MS would still have low market acceptance over there.

[Bronty-2]

Huh? :D If anyone has the resources, MS does. Besides, sony's taking losses on their electronics business, so if there are such great synergies there, why are they still getting reamed on that side? Just tells me that there aren't a lot of significant synergies.

[googlefest1]

well i wasnt refering to resources as money

sure MS has money -- and it takes money to develop products - and after loosing money with out making money one may consider closing up shop earlier than one that has the ability to develop products at a lower cost - thats all im saying and asking about

I havent looked up Sony investor information but i didnt think thier buisness is lossing money - if anything they may not be meeting their projections which is not loosing money - but ofcourse in the financial world thats considered loosing money. companies cant keep raiseing thier numbers every year - there is a ceiling.

any ways back to the discusion

i only posed that view point becasue of my exposure to sony and my expectations regarding the organization of its major competitors in the video game market -- anyone care to take a crack at my question/observation/speculation

[Tan]

i find it interesting how these numbers are reflecting on just how big EA has become, Nintendo is slated to rake in 1 billion, while EA's profits dropped to only 1.2 billion this year LOL not too mention how they've got like 15-20 games on the top ps2 list

[Porkchop]

For Microsoft it is not about video games. Bill Gates wants to dominate the software and internet business and he launched the xbox as soon as he saw the PS2 as a threat to MS's domination of the home computer market. Having millions of computers (PS2s) in houses around the world not running MS software was unacceptable. Read the book "Opening the Xbox" if you what to understand where MS is coming from.

Video games are software and some day soon MS will dominate the video game market just like it does the PC software business. Those old enough to remember the early days of the PC will remember market leaders like Lotus 123, WordPerfect, Novel and Netscape. Where are they now? Destroyed by MS!

Sony's days in the video game business are numbered. :evil:

Microsoft will get 80% of the video game market and leave the other 20% for Nintendo and others.

[kainemaxwell]

Think of it this way too: Sony has their electronics to fall back on and give them cash, MS has their PC division to fall back on. What's Nintendo have?

[Cmtz]

Here:
http://video.google.com/videoplay?docid=9001569238794703205&q=nintendo+revolution

[Griking]

Video games are software and some day soon MS will dominate the video game market just like it does the PC software business. Those old enough to remember the early days of the PC will remember market leaders like Lotus 123, WordPerfect, Novel and Netscape. Where are they now? Destroyed by MS!

Sony's days in the video game business are numbered. :evil:

Microsoft will get 80% of the video game market and leave the other 20% for Nintendo and others.

X_x Can't wait to see the responses that comment will generate by the Sony Fanboys. It is hard to disagree with you though. Microsoft has flattened pretty much every competitor its faced so far.




Think of it this way too: Sony has their electronics to fall back on and give them cash, MS has their PC division to fall back on. What's Nintendo have?

Actually I think that Son'y is looking at things differently. I actually think that Sony is hoping that their videogame unit can bail out their electronics division which between slipping sales, shitty quality and lawsuits is hemorrhaging money.

[stressboy]

Actually I think that Son'y is looking at things differently. I actually think that Sony is hoping that their videogame unit can bail out their electronics division which between slipping sales, shitty quality and lawsuits is hemorrhaging money.

Sony's sales may be turning around:

http://www.beyond3d.com/forum/showthread.php?t=27809

[Nature Boy]

Microsoft has flattened pretty much every competitor its faced so far.

I wonder why they aren't quite smart enough to put a dent in the Japanese market by releasing games that appeal, you know, specifically to gamers there.

I don't doubt they're trying to be king of the mountain, I just wonder how they think they'll get there if they're letting their competitors dominate a rather large 1/3rd of the international market.

(I'm thinking of the market here as being US/Europe/Japan, not speaking to what % each market contributes to the overall pie).

[Leo_A]

Some of you need to take a corporate finance or economics course at your local colleges.

Making a profit isn't the only thing. Purely being profitable isn't any guarantee of staying in that business, or even if they should retain that portion of their business.

If there are better opportunuties at hand that will be more profitable, a business would be wise to shift its focus to that area. So you all better hope that not only does Nintendo's console business remain in the black, but that it makes a good profit that Nintendo wants to keep and can't find a better alternative to put those funds to use. I'd be worried myself, Nintendo's facing its first real competition in the handheld market where it makes the majority of its profits, is facing declining sales in the console segment, shifting those assets to protect its handheld market share just could happen.

I don't know how some of these myths start like the one about Nintendo having billions sitting around in bank accounts not doing anything. A company would be crazy to have that much captial sitting idle doing nothing when it could be put to use to increase profits.

[Ed Oscuro]

I don't know how some of these myths start like the one about Nintendo having billions sitting around in bank accounts not doing anything.
Strangely enough this myth is widely reported. Maybe it's not a myth after all, and you just need to get in step.

In 2001 Nintendo made up its profitability on currency gains (the yen fell in relation to the dollar that year). Right now, their total assets are about $8 BN US, while their net income was $730 M last year.


A company would be crazy to have that much captial sitting idle doing nothing when it could be put to use to increase profits.
Such as, you know, waiting for the opportunity to put those funds to good use. There's no sense dumping funds into projects when they won't do any good, and Nintendo has the prospect of a costly advertising blitz ahead of them. Income and investment (in advertising) aren't a revolving door where what comes in should go out within a short period of time; Nintendo keeping reserves of money high in anticipation of a new venture makes all sorts of sense.

You seem to suggest that Nintendo could increase profitability of their handheld business by tossing money at it. From my vantage point, most everybody who wants a GBA has one at this point, and we've seen a good deal of interest built up in the DS - but I don't think an advertising campaign would do them much good at this point, compared with the hype the DS Lite announcement has generated.

[Leo_A]

Having money tied in assets isn't the same as having it sitting in some bank account. I have no doubt Nintendo has billions in assets due to its success over the years.

As for the rest of what you say, good points. I don't intend for what I said to be a fact, but just another scenario that could play out. GBA is dead, but the DS is just starting to hit its stride and there's likely a new Game Boy in the works, since kits obvious Nintendo would never abandon the name.

[Ed Oscuro]

Having money tied in assets isn't the same as having it sitting in some bank account.
Nintendo won't be able to convert assets into cash to pay for the Revolution marketing and production with, so it stands to reason that they have a good deal in the bank right now. Sadly, I can't tell from their fiscals how much is tied up in other aspects of their net worth.

[Nature Boy]

Nintendo won't be able to convert assets into cash to pay for the Revolution marketing and production with, so it stands to reason that they have a good deal in the bank right now.

Companies shouldn't run their finances like my Grandmother does, squirrelling away money until you're ready to buy something.

If I have money sitting in my bank account sitting around waiting for something to pay I'm *losing* money by not having it invested somewhere and earning me money. I think that's part of the point Leo_Ames was getting at - no company should have money just sitting there, it should be earning them money in some fashion!

[hydr0x]

Think of it this way too: Sony has their electronics to fall back on and give them cash, MS has their PC division to fall back on. What's Nintendo have?

eh, as much as i wanted to stay out of this thread, i have to respond to this

you think Sony has it's electronics to fall back on? well i can tell you one thing, it's exactly the other way around, since the early 90s Sony has been losing ground in all their markets. They were once the nr1 in HiFi and several other industries. If you look at those now, you'll see that Sony is basically dead in some of those (look at stuff like amps) and has lost market shares in all of them. Their video game department is where they make the money, and in fact i've read several analysts state that they think Sony probably would have died without PlayStation.

[Leo_A]

That's exactly what I was trying to say, thanks Nature Boy.

[Diatribal Deity]

Nintendo won't be able to convert assets into cash to pay for the Revolution marketing and production with, so it stands to reason that they have a good deal in the bank right now.

Companies shouldn't run their finances like my Grandmother does, squirrelling away money until you're ready to buy something.

If I have money sitting in my bank account sitting around waiting for something to pay I'm *losing* money by not having it invested somewhere and earning me money. I think that's part of the point Leo_Ames was getting at - no company should have money just sitting there, it should be earning them money in some fashion!

Yes, but he should take his own advice and do some more current research. Large corporations are sitting on tons of cash right now (obviously not stored or stashed - more like in short term investments - highly liquid assets). It has been widely speculated that this cash surplus will help bail out the US economy this year as business spending will increase as consumer spending is affected by rising interest rates.

What does this have to do with the big three? Well companies like Microsoft can take some of that extra cash and experiment more with new ideas and/or cultivate up and coming creative companies with unique projects. It will also allow them to streamline development and production.

[Leo_A]

I was referring to both short term and long term investments.

And regardless of the fact, I'm no expert, I'm not a corporate finance major, but it annoys me to constantly see that posted at various boards. Purely being profitable isn't good enough in today's corporate world, getting the best return possible is what companies are after, and no major company would just have money sitting around when it could be invested and earning more for the firm.

[Diatribal Deity]

I was referring to both short term and long term investments.

And regardless of the fact, I'm no expert, I'm not a corporate finance major, but it annoys me to constantly see that posted at various boards. Purely being profitable isn't good enough in today's corporate world, getting the best return possible is what companies are after, and no major company would just have money sitting around when it could be invested and earning more for the firm.

It is all relative. Much of this excess cash is essentially lent out to other companies in the form of commercial paper. When they say companies are sitting on large amounts of cash it merely means they are able to capitalize on this and other forms of barely talked about assets. The commercial paper business is a multi-trillion dollar industry engaged in by many cash hoarding companies (although it is rarely talked about in the mainstream media). Believe me when I say that cash is always at work in one form or another.

I wasn't targeting you personally, just presenting info that hopefully will help others understand that there are more layers to things than immediately assumed. These companies have the best financial advisors who know every trick in the book (the successful ones that is).