Nintendo 2003 Annual Report Download - page 54

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Analysis of Operations and Financial Review
It has been twenty years since the birth of Nintendo’s “Family Computer System” in Japan --- today the video game industry has
expanded into a world-wide market. Since that time, hardware capabilities have significantly advanced and in many respects it
has become much easier for game creators to present their ideas in software. At the same time, there have been dramatic
changes in users’ expectations, and new excitement in software is constantly demanded. More recently, hardware
manufacturers have engaged in fierce price competition while, at the same time, a larger number of software titles flooded the
market, increasing both game development costs and marketing costs. However, a significant portion of recent software sales
have been concentrated in only a handful of these titles, resulting into a severe business environment.
Under such circumstances, Nintendo Co., Ltd. (the “Company”) and its subsidiaries (together with the Company, “Nintendo”)
have been striving to provide unprecedented entertainment experiences through its game development “know-how” acquired
over the many years of experience in both the home entertainment market as well as the handheld market.
During the fiscal year ended March 31, 2003, Nintendo launched NINTENDO GAMECUBE in Europe, along with GAME BOY
ADVANCE SP worldwide, and GAME BOY PLAYER, which enables users to enjoy GAME BOY software on the television screen, in
Japan. Captivating software such as POCKET MONSTERS RUBY & SAPPHIRE, SUPER MARIO SUNSHINE, and THE LEGEND OF
ZELDA: THE WIND WAKER were also released.
As a result, consolidated net sales for the fiscal year ended March 31, 2003 were ¥503.7 billion ($4,198 million) which
represents a 9% decrease compared with the previous fiscal year. Operating income in Fiscal 2003 decreased by 16% compared
with the previous fiscal year to ¥100.3 billion ($835 million). Net income in Fiscal 2003 decreased by 37% compared with the
previous fiscal year to ¥67.3 billion ($561 million).
Overview
Released in Japan in November 2002, and in the Americas in March 2003, POCKET MONSTERS RUBY & SAPPHIRE gained
popularity as the latest POKÉMON software release, which features new characters and new game ideas. Within a short period
of time, the game sold more than a combined total of 6.6 million pieces in the Japanese and American markets, which proved
that POKÉMON software which is a fundamental and a core product in the POKÉMON business is yet highly regarded. Other
GAME BOY ADVANCE software such as YOSHI’S ISLAND: SUPER MARIO ADVANCE 3, KIRBY: NIGHTMARE IN DREAM LAND, THE
LEGEND OF ZELDA: A LINK TO THE PAST / FOUR SWORDS also sold strongly.
GAME BOY ADVANCE SP, which is an improved version of GAME BOY ADVANCE, gathered support from a wide range of age
groups and got off to a good start in the Japanese, American, and European markets. GAME BOY ADVANCE SP and GAME BOY
ADVANCE sold a combined total of 15.65 million units in the fiscal year ended March 31, 2003, with life-to-date unit sales
reaching 33.81 million units.
As for NINTENDO GAMECUBE software, creative software such as SUPER MARIO SUNSHINE (a game with plenty of action
where Mario freely moves around 3D space), METROID PRIME (a multi-award winning first person adventure game which was
highly regarded in Europe and America), and THE LEGEND OF ZELDA: THE WIND WAKER (where users can experience the feel of
virtually moving a cartoon character) were released to further enhance the software lineup. Furthermore, in the Americas,
ANIMAL CROSSING was released during this fiscal year and received top ratings as a most innovative game. The NINTENDO
GAMECUBE wireless game controller WAVEBIRD which enables users to enjoy new freedom was also well received.
However, effected by the impact of price cuts on hardware initiated by the Company’s competitors, NINTENDO GAMECUBE
hardware resulted in a slowdown in sales.
As a result, consolidated net sales in Fiscal 2003 were ¥503.7 billion ($4,198 million). Gross margin was ¥195.6 billion ($1,630
million). The gross margin ratio decreased by 1% compared with the previous fiscal year to 39%. Selling, general and
administrative expenses amounted to ¥95.4 billion ($795 million). Operating income was ¥100.3 billion ($835 million). The
operating income ratio decreased by 2% compared with the previous fiscal year to 20%. Along with interest income of ¥15.9
billion ($133 million), the Company reported gain on sales of investments in affiliates of ¥19.1 billion ($159 million). Although,
because of the trend of yen appreciation, foreign exchange loss was ¥22.6 billion ($189 million). Due to such factors, net
income was ¥67.3 billion ($561 million). The net income ratio decreased by 6% compared with the previous fiscal year to 13%.
Revenue and Expenses
50
Nintendo Co., Ltd. and consolidated subsidiaries