Nintendo reported a disappointing quarter and a historic annual loss, Thursday, April 26, following weak sales of its Nintendo 3DS handheld and Wii gaming consoles. In all fairness, Nintendo warned this would happen. Last November, the company said the fiscal year wrapping up in March would mark the first full-year loss in its history.

The net loss of ¥43.2 billion ($533.8 million) reported on Thursday, however, is twice as high as Nintendo's November estimate, and a major drop from last year's net profit of over ¥43.2 billion ($533.8 million).

Reasons for Decline

According to Nintendo, this major turnaround is partly due to a historically strong yen, which affected the apparent value of sales made abroad. On the other hand, most of the blame lay on the 3DS, as initially weak sales forced Nintendo into a drastic early price drop that lowered expected profits. "What went wrong was that sales of the 3DS didn't take off as we expected," said Nintendo President Satoru Iwata. "The stronger yen against the euro was also another reason."

The price drop did help turn around sales of 3DS hardware, which reached 13.53 million units sold worldwide, however software sales for the 3DS still did not rise up to Nintendo's expectations. The company released heavy titles like "Super Mario 3D" and "Mario Kart 7" last holiday season, but blames weaker-than-normal holiday spending in the U.S. and Europe.

More Pressure on the Wii U Launch

With such poor fiscal results, the launch of Nintendo's Wii U, slated for later this year, would have to work miracles. Nintendo, however, does not seem overly optimistic that its upcoming console will be able to turn things around. The company estimates it will sell only 10.5 million consoles in the next fiscal year, and the number is for combined Wii and Wii U sales. Nintendo's projection for the next fiscal year is only a slight increase from the 9.84 million Wii units it sold worldwide last year. Meanwhile, overall sales of home console software are expected to drop more than 30 percent over the next year, as the Wii's continuing decline is believed to drag down early adopters of Wii U.

Nintendo, however, expects to return to a healthy profitability next year, driven by growth in the 3DS market. The company estimates it will start making a profit again on 3DS hardware sometime late this year, should it manage to lower manufacturing costs. In addition, Nintendo projects hardware sales will increase by nearly 50 percent and software sales will more than double compared to last year. The company aims to achieve this through a planned Asian rollout and game releases like "New Super Mario Bros. 2," "Animal Crossing," and a new "Brain Age."

Nintendo, 'Overly Optimistic'

On the other hand, not everyone views this score as optimistically as Nintendo. "I found the handheld hardware and software outlook to be overly optimistic, as they expect year-over-year growth in each category in the face of competition from PS Vita and increasing smart phone/tablet penetration," Michael Pachter, an analyst for Wedbush Morgan, told Ars Technica. "I think that the best case is that handheld hardware and software are flat year-over-year, and the likely case is that they see declining sales."

Should this be the case, Nintendo would need a spectacular launch for the Wii U in order to be able to return to profitability in just one year. Pachter added, however, that Nintendo's strong cash reserves should be enough to sustain about ten years of its current losses. The Wii U will not be released until the "end of this calendar year," Nintendo said on Thursday.

(reported by Alexandra Burlacu, edited by Dave Clark)