Nintendo revises forecast to loss of Y25bn as Wii U sales falter If nothing else, Nintendo gets high scores for consistency. Amid the smartphone boom of the past few years, executives at the Kyoto-based company have stuck to the basic model that defined the modern gaming industry: sell hardware cheaply, or even at a loss, then make money back through sales of software. But that model now looks broken. Shares in Nintendo are expected to be hit on Monday, after it announced late on Friday that it had cut its net profit forecast of Y55bn ($527m) in the year to March to a net loss of Y25bn, as sales of its Wii U games console and the 3DS handheld unit fell well short of global targets. A big dip in software sales was inevitable. The previous forecast of 38m Wii U titles, for example, was cut in half. The peak Christmas season was a "disaster," says Serkan Toto, a gaming industry consultant based in Tokyo. A radical new beginning is the only way out. Analysts offer several reasons for the net loss, which is only the second in Nintendo's 52 years as a public company, coming just two years after the first. It certainly does not help that the Wii U - a console with a tablet-like controller, launched to great fanfare in 2012 - is now up against newer, faster models from Sony (PlayStation 4) and Microsoft (Xbox One). Global sales of the Wii U this fiscal year should come in at 2.8m, the company said, down from an earlier forecast of 9m. But the core problem is that the world's largest games-machine maker has been hurt by the big shift to mobile devices. Casual gamers are abandoning specialised hardware in favour of playing on phones and tablet computers, on which titles can be downloaded at a fraction of the cost. It is high time Nintendo opened up too, say some, by letting its much-loved characters such as Mario, Pikachu and Link, the hero of the Legend of Zelda series, run free on mobile devices, either by selling games directly or by licensing them to other developers. President Satoru Iwata hinted at such a move on Friday, saying that the group was "thinking about a new business structure." Nintendo is due to hold a strategy event on January 30, a day after its third-quarter results. "Given the expansion of smart devices, we are naturally studying how smart devices can be used to grow the game-player business," he said. Until now Nintendo has resisted, dismissing smartphone games - often offered for free, with payment for add-ons - as short-term money spinners that destroy long-term value. Presenting the group's last quarterly results in October, Mr Iwata put up a stout defence of the 3DS device, which still entrances knots of school boys on trains and in bus shelters all over Japan. Domestic sales of more than 5m 3DS units for two consecutive years do not fit the "hypothesis" that "smart devices will replace dedicated gaming systems," he argued. And David Gibson, a Tokyo-based analyst at Macquarie, notes that total global sales of the 3DS this year should be only slightly down from last year, from just under 14m to 13.5m, with software units up a third to 66m. "It's Wii U that is the problem," he says. But many say a shift to mobile is overdue, all the same. When the market capitalisation of Nintendo, 125 years old this year, was briefly surpassed last May by GungHo Online, a little-known developer of the hit mobile game, Puzzle & Dragons, it should have sent a signal to management, says Atul Goyal, an analyst at Jefferies in Singapore. For now, Nintendo's suspicion of mobile is making a lot of investors wary. Before Friday's profit warning, just four of 20 analysts ventured a "buy" rating, putting Nintendo among the two-dozen least popular stocks among the Nikkei 225. "When they say "no mobile" what they mean is, they don't want to see Mario on a $30 Android phone from Shenzhen with bad resolution and a bad touch screen," says Mr Toto. But ultimately Nintendo will be not able to resist. Smartphones and tablets are just too powerful now - they're just in too many hands.