Citigroup analyst Soichiro Fukuda has downgraded Nintendo from Buy to Hold, citing a peak in Wii and DS (handheld game console) sales. Fukuda is also nervous about Microsoft’s price cut on its X-box 360, which he thinks will further limit Wii growth:
While we think a big increase in earnings in FY3/09 is possible on the strength of the Wii and DS overseas, we think this will be the peak year for the DS and that it is now unreasonable to expect improvement in sales momentum for the Wii.
NPD data on the North American market reveals that Wii sales fell to 560,000 units in July from 670,000 in June. There has been no major change in average weekly sales (five weeks counted in June, four in July), but given the Wii production uptrend, we think the numbers are unsatisfactory. Microsoft announced price cuts for the Xbox 360 on September 3, taking the low-priced version down to $199, versus the Wii’s $249.
Fukuda doesn’t expect the X-box price cut to seriously erode Nintendo sales volumes, as he thinks the consoles appeal to two fundamentally different types of gamers. However, at $199, X-box could hamper the Wii’s growth.
A price of $199 is the perfect position for wide uptake in the North American market. We doubt the Xbox 360 price cut will seriously erode Wii sales volumes, as the consoles appeal to different users, but we feel it will be more difficult than before for the Wii to capture core users. We also expect
Nintendo’s own titles for the Wii in H2 to be weaker than in the year-ago half.
Fukuda cuts his target from 73,000 Yen to 59,000 Yen.
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