Nintendo losing ground to Sega: Video games giant blames profit warning on soaring yen

NINTENDO, the Japanese giant famous for video games such as Super Mario, Street Fighter II and Mortal Kombat, yesterday blamed a dramatic profits warning on the soaring yen.

But commentators were quick to point out that Sega, its smaller rival, appears to be weathering the storm much more sturdily, suggesting it is continuing to win market share from its competitor.

Nintendo has slashed its forecast earnings from both domestic and overseas sales for the year to March 1994 by almost a third to Y121bn ( pounds 756m). Last year, Nintendo's Y166bn profit made it the sixth- largest Japanese company in terms of taxable profits. Its previous forecast had been for maintained profits of Y170bn. It now also expects sales to fall, probably by around 16.7 per cent, to Y500bn.

Some profits revision was expected; all Japanese industry has been hard hit by the combination of a domestic recession and a strong currency. But analysts said the revision was considerably worse than expected, suggesting Sega may be getting the upper hand.

'Certainly in the UK, Sega has had the better games, the better advertising and the street cred,' Nick Bubb, a retailing analyst at the brokers Morgan Stanley, said. 'Nintendo has also been slow in getting its hardware to market, which hasn't helped.'

Sega, for example, was first to introduce a more powerful 16-bit video game machine and a compact disc (CD-ROM) player, leaving Nintendo trailing.

The bigger company has attempted to fight back with price cutting. For example, its Game Boy now sells for half the price it did a year ago.

But that has been a painful exercise for Nintendo, especially given the speed with which the yen has risen - over the past year it has appreciated by more than 23 per cent against sterling and now stands at an all-time high against the dollar.

Nevertheless, many in the industry believe Nintendo's hardware costs are still too high in Europe. A typical video-game machine costs up to three times as much in the UK as in Japan.

Meanwhile, in its traditionally resilient home market, Nintendo has been hit hard by the depth of the economic recession.

(Photograph omitted)