Swot Analysis for Nintendo

Company overview Nintendo is a Japanese based corporation founded in 1989. It’s original purpose was producing handmade hanafuda cards. After failed attempts at changing the direction of the company, it found success in the interactive entertainment systems and software industry. It changed its name from Nintendo Playing Card Company to Nintendo Company, Ltd. in 1963. Since then, Nintendo Co. has been creating video games and gaming systems that have become tops in their respective categories.

In the early 1980’s, Donkey Kong was introduced to the markets and became an instant classic. This was followed a couple years later with Super Mario Brothers and Legend of Zelda. All three of these games are recognizable by most people. After these games were introduced on Nintendo’s original game system, Nintendo introduced an upgraded version of their original gaming system and called it Super Nintendo. This 16-bit console enjoyed instant success in both the Japan and American markets. Five years later another upgrade was introduced called Nintendo 64.

Since then, Nintendo has introduced Nintendo Gamecube and Nintendo Wii. Both systems, along with the previous consoles, have enjoyed much success along with the software (games) that they also create. Today, Nintendo is still enjoying an increase in sales with their Nintendo Wii console and games. Although Nintendo only works in the Video Games industry, the company is also the majority owner of the Seattle Mariners in Major League Baseball as well as a partial owner of the Atlanta Hawks in the NBA. The SWOT analysis of Nintendo Strengths

According to Datamonitor’s company profile on Nintendo, published on September 17, 2007, Nintendo has four main strengths: A strong brand name, high returns, high employee efficiency, and debt free status. ‘ Nintendo’s strong brand name comes from about twenty-five years experience in the video gaming business. Not only do they have a strong presence in the console market but they are the leader in the handheld console market. They pioneered this market in 1989 with the original Game Boy. Since then, they have upgraded to create Game Boy Advanced and Nintendo DS, which sold 79. million units and 40. 3 million units, respectively, in fiscal 2007. The Nintendo Wii, which is their most updated console, sold 5. 84 million units in the first five months in its launch alone. This system consists of motion sensors attached to the end of the controllers as well as the console, which makes the games more interactive. A high percentage of the people that play video games in today’s day are college students. Being part of that percentage, I know that I think highly of Nintendo based mainly on the fact that they created regular Nintendo.

If I could choose today between playing the most technologically advanced gaming console and the original Legend of Zelda, I would play Legend of Zelda for hours. Nintendo has also been very successful in investing their resources in profitable companies and ideas. This would include their ownership in the Seattle Mariners and the Atlanta Hawks. It also refers to their high return on assets and equity when compared with other companies in the same industry. Nintendo also has high employee efficiency.

According to Datamonitor, “revenue per employee was about $206,960 in fiscal year 2007, significantly higher compared to the industry average of about $3,684 during the same period. ” Nintendo’s biggest strength in my opinion is their ability to stay debt free. Their most recent debt to equity ratio was zero compared to the industry’s average of 11. 9%. This not only shows that they are able to efficiently finance its’ operations but also enjoys a lot of financial flexibility. Weaknesses Nintendo’s two biggest weaknesses are having a dependence on contract manufacturers as well as having low earnings per share.

In regards to the dependence on contract manufacturers, Nintendo reaches out to companies to produce the key components of their consoles as well as assembling the finished products. The problem is, the new Nintendo Wii console is under such high demand that the manufacturers are not able to supply the key components or assemble the products fast enough creating a lack of finished products to be sold. It is assumed that this shortage will have a sizeable affect on the company’s overall revenue. Low earnings per share is calculated by dividing profit by the weighted average common shares. Nintendo recorded a 12. 6% decline in its earnings per share for five year period, from 2003 to 2007, significantly lower compared to the corresponding industry average of 43. 9%. ” This is important to note because it may affect the investors in the company negatively by lowering their confidence. A third weakness is the lack of games produced for Nintendo consoles. In my personal opinion, I have steered away from recent Nintendo products such as Gamecube and Wii because of the lack of games so far. Regular Nintendo, Super Nintendo, Gameboy, and Nintendo 64 all had a wide variety of games.

Gamecube and Wii, however, have been overshadowed by other systems with many more games such as Playstation 2, Xbox, and Xbox360. It seems as if Nintendo is always so anxious to get their gaming systems out that they never wait to have enough games to satisfy their customers. Opportunities Nintendo has a few different opportunities. For starters, the United States game software market is soaring right now. Video games and consoles are some of the most sold items, especially during the holiday season. Because of their reasonable prices, games can be given as gifts by pretty much anyone.

The video game market is also soaring as is evident by the $8 billion dollars in revenues in 2006 in addition to the consoles market generating $6. 6 billion dollars in revenues during the same year. These figures are expected to increase as well over the next couple years to reach up to $10. 3 billion dollars at the end of 2011. Another grand opportunity that Nintendo is planning on attacking is the Indian console market. Although the revenues are not nearly as much as the American market, the Indian market for consoles is expected to skyrocket to $120 million by 2010 from just $13. million in 2006. Because of Nintendo’s great brand image, as discussed under strengths, Nintendo will succeed in these new markets. The greatest opportunity, however, is in the online gaming market. The world is continuing to become more computer oriented in such that computers are now about as normal household item as a television set. Because of this, and the generation of children growing up in this kind of environment, the market of online gaming is become increasingly large. In 2006, only 46 million people were using broadband connections to play video games online.

That number is expected to jump up to 413 million users by the year 2010. Nintendo has taken steps to attract this audience by setting up their Wii system to be internet accessible and have the ability to update content, including up to date weather services and news feeds. Threats There are a handful of threats that go along with all of these opportunities and strengths, however. For one, Nintendo products are often very pricey. This allows other products with similar or slightly lesser quality to steal customers by pricing their respective consoles and games to make them more affordable.

Another knock on the Nintendo products is their short lifecycle. In the video game industry, products “lose their flavor” after approximately nine months, at which point a different product will come out that seems to be more updated and technologically advanced. Because of this, Nintendo will have to make sure to release all products on time and be able to meet the demand of their products with their supply. Leaving stores sold out of products will result in loss of sales in the long run due to the short lifecycle that each product will enjoy.

The last threat to Nintendo products is their poor durability. The Nintendo Wii controllers have had the most significant problems when it comes to this. In many circumstances, the Wii controllers have not been properly designed resulting in the controller flying from the user’s hands and into televisions sets. Having problems such as these results in recalls, which is a very lengthy and expensive process. To prevent this, Nintendo must confirm that all products are being properly designed and manufactured prior to release.

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