Financial Results Briefing for Fiscal Year Ended March 2011 Q & A

Financial Results Briefing for Fiscal Year Ended March 2011

- Apr. 26, 2011

Outline | Presentation by the President (Text) | Q & A

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10-1	I heard that, due to the Great Earthquake, electrolytic solution for aluminum condensers is in short supply and that it is difficult to obtain ceramic capacitors because the electronic furnaces are not moving. Has your own supply chain been affected by these factors? Concerning Wii, I think that Nintendo failed to draw in third parties. Thinking about the Japanese and overseas situations separately, in Japan, I assume that third parties thought that Wii's performance was low, and did not actively develop software for Wii. For the overseas markets, I assume the biggest reason was that Wii wasn't capable of HD, but was it not also because Nintendo failed to draw in third parties in terms of M- rated (ESRB rating: 17 years and older) games? I would like to hear about your recognition of the current status. Taking my comments into regard, will Wii's successor be a system which can alter the current understanding that third parties have especially in the area of performance? I would also like to receive your comments on that point.
10-1	Iwata: First, I would like to comment on the issue of the supply chain. We have most of our production based abroad. Also, we are manufacturing some software in Japan, but the locations are far from the affected area, so none of our production bases were directly affected. However, in today’s world, products are being produced by assembling a number of different component parts and materials, so it is impossible to not have any effect on a supply chain. However, we believe we have taken measures so that there will be no impacts to our current production plans. We have come up with our plan with the premise that, as long as there will not be any further negative development in the situation, the Great Earthquake will not have a serious effect on our product supply. The reason why we have a conservative view for the first half of this fiscal year is because we are taking into regard the current Japanese market sentiment, the situation of the launch of Nintendo 3DS, the software we can propose and the estimated length of time needed for the value of Nintendo 3DS to be understood by and spread to the consumers, which took more than a year for Nintendo DS. These factors made us think that we could not be too optimistic in the first half of this fiscal year, but the supply chain issue didn't have any effect on our plans. Regarding your analysis that cooperation with third-party software developers didn't go as well for Wii as it went for Nintendo DS, there actually are some arguments which attribute the reason to the system’s "performance," but in terms of "performance," Nintendo DS did not overwhelm other devices by its performance. However, it proposed what other devices could not, and that value was recognized, and as a result the software sold well, which is the most important point. Unfortunately, there are very few success stories of third-party software in Japan on Wii. This lowered the motivation of the software developers, and at a time when these software developers should have been running their businesses on the platform with the biggest installed base, this wasn't the reality. On the contrary, in the U.S., several titles sold well. Not only "JUST DANCE," which I introduced today, but for some titles, such as "Guitar Hero," even if the titles were released for multiple platforms, the Wii version sold the most, and in such a situation, the developers did not completely lose motivation for development on Wii. However, Wii is good in some areas but not in others, so especially for games like "Call of Duty," the Wii version sold pretty well, but the unit sales were very different from the versions of other platforms, and I assume that one of the reasons is the issue with the graphical representations which you mentioned before, and also, the consumers who like that kind of game will have other platforms at home as well, which led to this result. Of course, we would like to cooperate with software developers for Wii's successor, and as I am repeatedly saying, I don't believe Nintendo can carry out everything alone. I am saying that we are responsible for building up the market, but I don't think that Nintendo can maintain the market alone; We are aiming for creating a situation where software publishers will be willing to cooperate. As for commenting on such things as the performance, I already stated in the beginning that I would not mention any specific plans. Thank you for your understanding.

10-1

I heard that, due to the Great Earthquake, electrolytic solution for aluminum condensers is in short supply and that it is difficult to obtain ceramic capacitors because the electronic furnaces are not moving. Has your own supply chain been affected by these factors?

Concerning Wii, I think that Nintendo failed to draw in third parties. Thinking about the Japanese and overseas situations separately, in Japan, I assume that third parties thought that Wii's performance was low, and did not actively develop software for Wii. For the overseas markets, I assume the biggest reason was that Wii wasn't capable of HD, but was it not also because Nintendo failed to draw in third parties in terms of M- rated (ESRB rating: 17 years and older) games? I would like to hear about your recognition of the current status.

Taking my comments into regard, will Wii's successor be a system which can alter the current understanding that third parties have especially in the area of performance? I would also like to receive your comments on that point.

10-1

Iwata:

First, I would like to comment on the issue of the supply chain. We have most of our production based abroad. Also, we are manufacturing some software in Japan, but the locations are far from the affected area, so none of our production bases were directly affected. However, in today’s world, products are being produced by assembling a number of different component parts and materials, so it is impossible to not have any effect on a supply chain.

However, we believe we have taken measures so that there will be no impacts to our current production plans. We have come up with our plan with the premise that, as long as there will not be any further negative development in the situation, the Great Earthquake will not have a serious effect on our product supply. The reason why we have a conservative view for the first half of this fiscal year is because we are taking into regard the current Japanese market sentiment, the situation of the launch of Nintendo 3DS, the software we can propose and the estimated length of time needed for the value of Nintendo 3DS to be understood by and spread to the consumers, which took more than a year for Nintendo DS. These factors made us think that we could not be too optimistic in the first half of this fiscal year, but the supply chain issue didn't have any effect on our plans.

Regarding your analysis that cooperation with third-party software developers didn't go as well for Wii as it went for Nintendo DS, there actually are some arguments which attribute the reason to the system’s "performance," but in terms of "performance," Nintendo DS did not overwhelm other devices by its performance. However, it proposed what other devices could not, and that value was recognized, and as a result the software sold well, which is the most important point. Unfortunately, there are very few success stories of third-party software in Japan on Wii. This lowered the motivation of the software developers, and at a time when these software developers should have been running their businesses on the platform with the biggest installed base, this wasn't the reality. On the contrary, in the U.S., several titles sold well. Not only "JUST DANCE," which I introduced today, but for some titles, such as "Guitar Hero," even if the titles were released for multiple platforms, the Wii version sold the most, and in such a situation, the developers did not completely lose motivation for development on Wii. However, Wii is good in some areas but not in others, so especially for games like "Call of Duty," the Wii version sold pretty well, but the unit sales were very different from the versions of other platforms, and I assume that one of the reasons is the issue with the graphical representations which you mentioned before, and also, the consumers who like that kind of game will have other platforms at home as well, which led to this result. Of course, we would like to cooperate with software developers for Wii's successor, and as I am repeatedly saying, I don't believe Nintendo can carry out everything alone. I am saying that we are responsible for building up the market, but I don't think that Nintendo can maintain the market alone; We are aiming for creating a situation where software publishers will be willing to cooperate. As for commenting on such things as the performance, I already stated in the beginning that I would not mention any specific plans. Thank you for your understanding.

10-2	Can I understand that you would like to draw in third parties proactively?
10-2	Iwata: I would not use the term "draw in" third parties, but I hope we can create a market that is attractive to third parties. The end result might turn out to be the situation you call "drawing them in," but I do not use such words as "draw in" or "enclosure," as I do not like such expressions.

10-2

Can I understand that you would like to draw in third parties proactively?

10-2

Iwata:

I would not use the term "draw in" third parties, but I hope we can create a market that is attractive to third parties. The end result might turn out to be the situation you call "drawing them in," but I do not use such words as "draw in" or "enclosure," as I do not like such expressions.

Outline | Presentation by the President (Text) | Q & A

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