Excellent article on market position of big 3 makers

[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).