Financial Results Briefing Q & A

Financial Results Briefing for the 67th Fiscal Term Ended March 2007

6	You told us that the U.S. market has yet to show the significant sales and that you would like to focus your efforts upon the American markets this year. Now that Pokémon Diamond & Pearl are launched in the U.S., you may be expecting the shift from Game Boy Advance to DS to take place there. But how about Wii? Would you be more specific as to how you market Wii in the U.S. this year?
6	Iwata: I told you today that the U.S. market was the last in making the changes. In fact, as long as the market change caused by DS is concerned, the U.S. appears to be the last market. We launched Brain Training software in Europe and in the Americas almost simultaneously, but there exists a big difference in sales. Until some point in time, Europe was constantly selling significantly more number of DS hardware on weekly basis, which was unthinkable in terms of the past when it was taken for granted that American markets would easily sell twice the number of sales made in Europe. So (specifically referring to the market change), I said today that Europe was first in blooming and the Americas are yet to show their real strength. Of course, we anticipate the expansion of DS there thanks to Pokémon and other titles. We will be glad as more Pokémon are sold, but it is not enough when we want to expand the gaming population. When I received a report from the U.S. that they sold 1 million Pokémon Diamond & Pearl already, I asked them, "why did you sell only 10,000 Brain Age last week, when Europe sold through 30,000?" This is a typical example of how I communicate with our people in the U.S. If that segment of customers is encouraged to buy a significant amount, we will be able to see the real market change. So, we will need to constantly make efforts to appeal to the new audiences. About Wii, on the other hand, we are feeling higher expectations in Americas than in Japan. People at NOA (Nintendo of America) tell me, "We have no recollection of a time when our products were being talked about this much in non-business situations." Probably, the U.S. practice of holding home parties and Wii's features, especially its unique aspect of "anyone can understand how to play instantaneously and can fully enjoy the play even in 5 minutes," are a good match. We think that we need to appeal to that aspect of Wii right now. Later this year, as I said, we will also be able to launch hard-core games, when we hope we can accelerate the Wii's installed base. We would like to make efforts to maximize the unit sales of Wii and DS in the American markets this year.

You told us that the U.S. market has yet to show the significant sales and that you would like to focus your efforts upon the American markets this year. Now that Pokémon Diamond & Pearl are launched in the U.S., you may be expecting the shift from Game Boy Advance to DS to take place there. But how about Wii? Would you be more specific as to how you market Wii in the U.S. this year?

Iwata:

I told you today that the U.S. market was the last in making the changes. In fact, as long as the market change caused by DS is concerned, the U.S. appears to be the last market. We launched Brain Training software in Europe and in the Americas almost simultaneously, but there exists a big difference in sales. Until some point in time, Europe was constantly selling significantly more number of DS hardware on weekly basis, which was unthinkable in terms of the past when it was taken for granted that American markets would easily sell twice the number of sales made in Europe. So (specifically referring to the market change), I said today that Europe was first in blooming and the Americas are yet to show their real strength.

Of course, we anticipate the expansion of DS there thanks to Pokémon and other titles. We will be glad as more Pokémon are sold, but it is not enough when we want to expand the gaming population. When I received a report from the U.S. that they sold 1 million Pokémon Diamond & Pearl already, I asked them, "why did you sell only 10,000 Brain Age last week, when Europe sold through 30,000?" This is a typical example of how I communicate with our people in the U.S. If that segment of customers is encouraged to buy a significant amount, we will be able to see the real market change. So, we will need to constantly make efforts to appeal to the new audiences.

About Wii, on the other hand, we are feeling higher expectations in Americas than in Japan. People at NOA (Nintendo of America) tell me, "We have no recollection of a time when our products were being talked about this much in non-business situations." Probably, the U.S. practice of holding home parties and Wii's features, especially its unique aspect of "anyone can understand how to play instantaneously and can fully enjoy the play even in 5 minutes," are a good match.

We think that we need to appeal to that aspect of Wii right now. Later this year, as I said, we will also be able to launch hard-core games, when we hope we can accelerate the Wii's installed base. We would like to make efforts to maximize the unit sales of Wii and DS in the American markets this year.

7	At the Tokyo Game Show of September 2005, Mr. Iwata mentioned that the unique controllers for Wii would be good for First-Person Shooter games. What kind of core-gamer reactions have you received, say, for Metroid Prime 3?
7	Iwata: The game has yet to hit any market, so my comments are referring only to the feedback from the game's testers. Talking about the first-person shooters in general, many of the players are playing FPS games on their PC, not on home console systems. Specifically, I heard they often say that FPS are more effectively played with keyboard and mouse rather than home video game systems' controllers. They can aim the target with mouse and move their characters with keyboard. Those who recognize that mouse and keyboard combination is the best for FPS are now sharing with us their impression that Wii Remote and Nunchack of Wii give them quite similar play feel and that they find some more potential with this new combination than with the existing controlling mechanism of other home console video game machines. Of course, no actual consumers have ever tested it yet, but I think it important for us to create the market where the developers will say, "Wii's controllers are perfectly suited for this genre of games." I think it is one of the important elements for us in order to expand the gaming population. For those who are accustomed to it and currently enjoying it, manipulating two levers at the same time to aim the target and move the character is easy, but it is almost impossible for beginners. After all, it is not something we are doing in our daily lives. Even those who are not good at FPS are now commenting that the Wii Remote and Nunchuck are lowering the hurdle for them to get started. We really want to invite newcomers to the world of first-person shooter games. Also, there are other areas where rather sophisticated play control systems have already been established, such as sports game titles that EA is famous for. With the Wii Remote and Nunchuck, we believe there are lots of new possibilities which are worth exploring.

At the Tokyo Game Show of September 2005, Mr. Iwata mentioned that the unique controllers for Wii would be good for First-Person Shooter games. What kind of core-gamer reactions have you received, say, for Metroid Prime 3?

Iwata:

The game has yet to hit any market, so my comments are referring only to the feedback from the game's testers. Talking about the first-person shooters in general, many of the players are playing FPS games on their PC, not on home console systems. Specifically, I heard they often say that FPS are more effectively played with keyboard and mouse rather than home video game systems' controllers. They can aim the target with mouse and move their characters with keyboard. Those who recognize that mouse and keyboard combination is the best for FPS are now sharing with us their impression that Wii Remote and Nunchack of Wii give them quite similar play feel and that they find some more potential with this new combination than with the existing controlling mechanism of other home console video game machines.

Of course, no actual consumers have ever tested it yet, but I think it important for us to create the market where the developers will say, "Wii's controllers are perfectly suited for this genre of games." I think it is one of the important elements for us in order to expand the gaming population.

For those who are accustomed to it and currently enjoying it, manipulating two levers at the same time to aim the target and move the character is easy, but it is almost impossible for beginners. After all, it is not something we are doing in our daily lives. Even those who are not good at FPS are now commenting that the Wii Remote and Nunchuck are lowering the hurdle for them to get started. We really want to invite newcomers to the world of first-person shooter games. Also, there are other areas where rather sophisticated play control systems have already been established, such as sports game titles that EA is famous for. With the Wii Remote and Nunchuck, we believe there are lots of new possibilities which are worth exploring.

8	You said that DS and Wii are both hardware to expand the gaming population and that you would like to expand to retail outlets beyond the video game retailers. What is your current situation on this regard?
8	Iwata: I recognize the possibility to expand to new retail outlets. On the other hand, we are currently facing product shortages even at the existing retailers. We have been running short of inventories, and they are getting after us. We are sorry that we were unable to sufficiently forecast this kind of demand, but now that this extraordinary situation has been going on, it makes sense for us to comply with such requests from our retailers as, "you have to supply enough to meet the demands from our existing customers" before we try to expand to new outlets. As each and every one of the retailers is demanding to receive more Wii and DS from Nintendo today, we cannot afford to take an action to expand to new retail outlets. However, even without trying to expand to new outlets, I believe it is possible for us to make new proposals on Wii and DS with the prospects of "enriching people's daily lives" or "putting smiles on surrounding people's faces." So, when the current extraordinary product shortages are solved, we would like to consider making a variety of moves.

You said that DS and Wii are both hardware to expand the gaming population and that you would like to expand to retail outlets beyond the video game retailers. What is your current situation on this regard?

Iwata:

I recognize the possibility to expand to new retail outlets. On the other hand, we are currently facing product shortages even at the existing retailers. We have been running short of inventories, and they are getting after us. We are sorry that we were unable to sufficiently forecast this kind of demand, but now that this extraordinary situation has been going on, it makes sense for us to comply with such requests from our retailers as, "you have to supply enough to meet the demands from our existing customers" before we try to expand to new outlets. As each and every one of the retailers is demanding to receive more Wii and DS from Nintendo today, we cannot afford to take an action to expand to new retail outlets.

However, even without trying to expand to new outlets, I believe it is possible for us to make new proposals on Wii and DS with the prospects of "enriching people's daily lives" or "putting smiles on surrounding people's faces." So, when the current extraordinary product shortages are solved, we would like to consider making a variety of moves.

9	Please give us your impressions about the announcement that Mr. Kutaragi resigns from his post of chairman at Sony Computer.
9	Iwata: I cannot say anything. Of course, it is not something we decide. Even if you ask me, I am not in a position to say anything. Sorry.

Please give us your impressions about the announcement that Mr. Kutaragi resigns from his post of chairman at Sony Computer.

Iwata:

I cannot say anything. Of course, it is not something we decide. Even if you ask me, I am not in a position to say anything. Sorry.

10	Tell us about the current production capability of DS and Wii, and the future plans.
10	Iwata: About DS, as I said before, we have been continuing the monthly production level of 2.5 million. Previously, Nintendo has produced 2.3 million Game Boy Advance hardware in a month only one time in the past. Few months in the past had we produced more than 2 million of any one hardware. In case of DS, however, we raised the monthly production to 2.5 million last year, and we have been keeping that production volume ever since then. As for Wii, we are not disclosing the monthly production number today. Of course, now that Wii is facing product shortages in the markets, we are working on increasing production, and the effect is starting to show up little by little in this month already. As this month's production will be sold in the worldwide markets by the end of the next month, a small increase is expected at the retail outlets from next month. While we are on this subject, it looks like some people are misunderstanding that Nintendo is not incorporating state-of-the-art technologies into its products. It is not true. Just as an example, we are using the state-of-the-art technologies to realize the compact-sized Wii console with low power consumption. Making a significant volume of the high-tech hardware, and making an additional volume, is not an easy task at all. In fact, when we clear one bottleneck for a production increase, we will face another one. We are repeating this process as of today, and it is just premature for us to declare how many we will make from when. We would like to confirm this sometime later. One thing is clear, though, that shipments will increase and that we are trying to increase the shipments in order to comply with the needs of patiently waiting customers.

Tell us about the current production capability of DS and Wii, and the future plans.

Iwata:

About DS, as I said before, we have been continuing the monthly production level of 2.5 million. Previously, Nintendo has produced 2.3 million Game Boy Advance hardware in a month only one time in the past. Few months in the past had we produced more than 2 million of any one hardware. In case of DS, however, we raised the monthly production to 2.5 million last year, and we have been keeping that production volume ever since then. As for Wii, we are not disclosing the monthly production number today. Of course, now that Wii is facing product shortages in the markets, we are working on increasing production, and the effect is starting to show up little by little in this month already. As this month's production will be sold in the worldwide markets by the end of the next month, a small increase is expected at the retail outlets from next month.

While we are on this subject, it looks like some people are misunderstanding that Nintendo is not incorporating state-of-the-art technologies into its products. It is not true. Just as an example, we are using the state-of-the-art technologies to realize the compact-sized Wii console with low power consumption. Making a significant volume of the high-tech hardware, and making an additional volume, is not an easy task at all. In fact, when we clear one bottleneck for a production increase, we will face another one. We are repeating this process as of today, and it is just premature for us to declare how many we will make from when. We would like to confirm this sometime later.

One thing is clear, though, that shipments will increase and that we are trying to increase the shipments in order to comply with the needs of patiently waiting customers.

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