Nintendo Co Ltd reported a 42 percent fall in quarterly operating profit as the yen's strength outweighed robust game sales, and the Japanese video game maker forecast a bigger-than-expected 12 percent profit decline this year, pressuring its shares.

Despite the slide in quarterly profit, Nintendo has fared much better than many other consumer electronics makers. Sony Corp, for instance, is deep in the red, hurt by a strong yen, feeble demand and ballooning restructuring costs.

Nintendo, vying with Microsoft Corp and Sony, has weathered the financial crisis relatively well as consumers continue to spend on games seen as affordable entertainment while cutting back on big-ticket items such as cars.

Nintendo expects its operating profit, a measure of a company's core earnings strength, to fall 11.8 percent to 490 billion yen ($5 billion) in the year to March 2010 due to a firmer yen. That is about 5 percent below a 517.4 billion yen profit consensus in a poll of 25 analysts by Thomson Reuters.

It would be Nintendo's first annual operating profit decline in four years.

At the net level, Nintendo forecast a 7.5 percent rise in profit this financial year to a record 300 billion yen, falling short of the market consensus of a 325.7 billion yen profit.

It is true these numbers are below market expectations. But they are not at all surprising as they tend to make conservative predictions at first, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Having said that, a period of break-neck growth now seems to be behind them, he said.

Nintendo's operating profit has soared over the past three years, driven by its twin growth engine of the Wii and DS, which have far outsold rival machines from Sony and Microsoft.

But Sony's PlayStation 3 sold more units than the Wii in March and April in Japan thanks to the launches of new game titles, raising investor worries the Wii's dominant position may start to erode in overseas markets as well.

The stock has lost 21 percent since the start of the year, underperforming a 6 percent gain in the Nikkei average.

But in the larger U.S. market, the Wii was still well ahead of the PS3 in March, the most recent data shows.

I'm afraid views that the U.S. game market just follows whatever has happened in Japan are a little too simplistic, Nintendo President Satoru Iwata told a news conference.


In a move to shore up Wii demand, Nintendo plans to launch its highly anticipated Wii Sports Resort software in June.

The company expects Wii sales to be virtually unchanged at 26 million units in the year to March 2010, and it is predicting a 4 percent slide in DS sales to 30 million units -- the first decline since its 2004 launch.

Nintendo's January-March operating profit was 53.93 billion yen, down from 93.18 billion yen a year earlier. Sales fell 15 percent to 302.27 billion yen.

For a graphic on Nintendo's historical quarterly operating profit and its share price performance, click

For the full year that ended on March 31, the company posted a record operating profit of 555.26 billion yen, up 14 percent, defying the global downturn.

It is quite natural that people are tempted to put the blame on the economy when things aren't going well, Iwata said.

But if you are able to offer attractive products, the kind of products that customers want to buy the most, you will probably not be affected that much by the bad economy, he said.

The Wii's unique features, including its motion-sensing controller that looks like a TV remote, have helped shield Nintendo from fierce price competition that is plaguing the electronics sector worldwide.

Following the earnings announcement, shares in Nintendo closed down 0.1 percent at 26,600 yen, erasing gains made ahead of the news, while the Nikkei was up 4.6 percent.

(Editing by Hugh Lawson)