NTDOY Nintendo Co Ltd (PK)

By Takashi Mochizuki 

OSAKA, Japan -- The global craze over the "Pokémon Go" smartphone game brought a net-profit windfall to Nintendo Co. in the latest quarter, but its lagging hardware business was an operating-earnings drag.

Nintendo recorded an operating loss of Yen812 million ($7.8 million) in the July-September quarter, as its flagship Wii U videogame console proved unpopular. It hopes to revive sales with its Switch console and hand-held device, set to go on sale next March.

For the April-September period, Nintendo booked a Yen12 billion ($111.1 million) profit from its affiliates -- mostly from Pokémon-related businesses, according to Chief Executive Tatsumi Kimishima.

In "Pokémon Go," which launched in July, players hunt for cute virtual monsters superimposed on their smartphone camera's images of real-life streets and buildings. They can make in-game purchases to help them play. Nintendo doesn't get the money directly, but it is a 32% owner of Pokémon Co., which produced the game along with Alphabet Inc. spinoff Niantic Inc.

Analysts said the Pokémon-related profit was a surprise. "This is shocking because I had my expectations much lower," said Hideki Yasuda, an analyst at Ace Research Institute.

Mr. Yasuda said the Nintendo portion suggested the "Pokémon Go" app as a whole earned more than Yen60 billion during the quarter. A Pokémon Co. spokeswoman declined to comment on the game's financial performance.

For Nintendo, the Pokémon impact went beyond the smartphone game, the company's Mr. Kimishima said: Many consumers picked up Nintendo's aging hand-held 3DS device to play older Pokémon games, and preorders were strong for new 3DS Pokémon games coming in November. Nintendo said it expected to sell six million 3DS units in the year ending March 2017, up from an earlier forecast of five million.

Nintendo also directly sells a $35 wearable device for "Pokémon Go" players.

Mr. Kimishima declined to give sales numbers but said demand is "much higher" than anticipated.

The favorable numbers from "Pokémon Go" suggest that Nintendo's own smartphone games are likely to contribute to the bottom line. Nintendo plans in December to release a game featuring Mario the plumber, the company's most famous franchise, for Apple Inc. smart devices.

Smartphone games are now the biggest segment of the industry, and analysts say Nintendo's family-friendly characters are well-suited to the medium. Some say Nintendo should get out of the hardware business and focus on smartphone software.

Nintendo disagrees and plans to roll out the Switch device to replace the Wii U, which has had disappointing sales. Nintendo released a first-look video about the Switch last week, and Mr. Kimishima declined to provide further details.

In the July-September period, the Kyoto-based company reported a net profit of Yen62.8 billion ($603 million), largely because of its sale of its controlling interest in the Seattle Mariners baseball team, which brought in Yen62.7 billion.

Nintendo raised its net-profit forecast for the year ending in March to Yen50 billion from Yen35 billion thanks to the Mariners sale, but said operating profit would come in at Yen30 billion, down from the previous forecast of Yen45 billion.

Write to Takashi Mochizuki at takashi.mochizuki@wsj.com

(END) Dow Jones Newswires

October 27, 2016 02:48 ET (06:48 GMT)

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