Print 72 comment(s) - last by Keeir.. on Oct 5 at 2:00 PM

Nintendo says that not everyone will be able to find a Wii

Even a year after launch, the Nintendo Wii still remains a hot item that rarely ever stays in retail stock –and comments from Nintendo of America president Reggie Fils-Aime indicate that demand will once again outstrip supply this holiday season.

“We have been sold out worldwide since we launched,” said Fils-Aime to the Mercury News. “Every time we put more into the marketplace, we sell more, which says that we are not even close to understanding where the threshold is between supply and demand.”

Fils-Aime adds that Nintendo is doing everything it can to meet the demand for Wii, and that “The issue is not a lack of production.”

“The issue is we went in with a curve that was aggressive, but the demand has been substantially more than that. And the ability to ramp up production and to sustain it is not a switch that you flick on. We're working very hard to make sure that consumers are satisfied this holiday, but I can't guarantee that we're going to meet demand. As a matter of fact, I can tell you on the record we won't,” said Fils-Aime.

In a previous story, the Nintendo president said that holiday supplies of the Wii will be “substantially more than the launch, substantially more than has been seen to date ... given the level of demand and given the fact that the more we put in, the more we sell, it is still going to be difficult to get your hands on the Wii.” 

Since launch, the Wii has topped the sales charts. NPD sales data from August showed the Wii selling 403,600 units, while the Xbox 360 sold 276,000 and the PS3 130,600. The Wii also became the fastest selling console in history in the UK, and according to several sources, Nintendo’s latest machine is now the worldwide leader for the generation.

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RE: Industry's understanding of Wii is flawed
By T3raYon on 10/1/2007 4:01:38 PM , Rating: 3
I'm quite sure I understand the production technology enough to comment the issue. The demand cycle is a known phenomenon in any kind of production environment that is typically augmented by forecasting methodologies. Also production lines are typically not meant to produce only one type of product in these days so when the demand goes down it's just a matter of reconfiguring the lines or slow them down to produce less...
I'm sure that Nintendo does not need to build another production plant to increase Wii output.

On meeting the demand - you are right and wrong.
Economists typically says that meeting the demand is good but it's a fine line so typically what happens is that the commodities are fluctuating above or below that point.
There are certain advantages under delivering the demand, first and foremost: price (items offered in greater volume than needed tends to erode their value). Not to mention the "status" of the item being "rare" or "needed". Think about gold and diamonds (bit extreme example but clearly demonstrates the value of rarity)

You also should wonder if the Wii stock out is really a LOST sales (sales that never going to happen) or a DELAYED sales (sales going to happen later).

I might have been overly simplistic here.
My point was that the Wii is never going to be able to offer games with the perceived high quality the market is rewarding so much (stunning visuals in High Definition for example). I do not want to hurt the true Nintendo fans, but it's a fact of life that this box was designed to deliver something drastically different than PS3 and Xbox 360.
There will always be multi platform releases but in essence those are not the titles DEFINING a platform.

RE: Industry's understanding of Wii is flawed
By Martimus on 10/1/2007 4:23:09 PM , Rating: 2
Warehousing costs are also benificial when you don't meet demand. But I would say that he is right, once you increase production, it isn't easy to back it off later. Add an additional shift to the factory, and eventually you will need to stop that shift when demand dies off, and that is a bunch of severance pay for layed off workers. Not to mention the extra maintenance costs, and other operational costs from adding extra shifts. Nintendo probably didn't expect demand to be so high for so long to justify those additional costs.

By SigmaHyperion on 10/1/2007 4:28:49 PM , Rating: 3
FWIW, Nintendo was set to increase production back in June. It had the contractors lined up and the works. Then there was a big shortage of chips from Taiwan (that's affected a lot of companies) that delayed the plans.

RE: Industry's understanding of Wii is flawed
By T3raYon on 10/1/07, Rating: 0
By Phynaz on 10/1/2007 7:51:31 PM , Rating: 4
You are obviously not working in an industry where fab capacity must be booked 6 - 12 months ahead of time.

By StillPimpin on 10/2/2007 10:23:40 AM , Rating: 2
I think we are a little confused. While the Wii, 360 and PS3 are "computers", they do not play in the IT industry. They are "Consumer Electronics." CE's which have a much longer life cycle than others. 5+ years as opposed to 6-12 months.

Now I don't know much about manufacturing but I don't believe that Nintendo is artificially keeping supply low to keep demand high. That is a risky game that I don't believe Nintendo willing to play right now.

I do believe however that they have not been releasing as much quantity into the market place as they could have because they have forecasted demand to be much higher this holiday season, and so they have held a little back to meet demand for that time, while still trying to satisfy current demand. In other words, they are playing it safe, which I believe is the right thing to do. I for one am going to get one for my family this holiday season if I can get my hand on one. If not, it might not be until September that I even consider getting one again.

And I believe this is where I believe Nintendo is planning on making its hay. Try to meet demand this holiday and if they can't, ramp production a little and release as much product as you can until you reach demand. That way they can increase production to meet demand without committing too many resources that they one day will not need.

RE: Industry's understanding of Wii is flawed
By Locutus465 on 10/2/2007 12:33:33 AM , Rating: 2
Fortunetly these products are made in the Orient (if not Japan then China) where Unions aren't quite what they are here (if they exist)... I'm sure there is some sort of severance package, but I'm sure it doesn't compare to what a UAW work shift would get.

By Murst on 10/2/2007 10:15:08 AM , Rating: 1
Of course they have severance packages. For example, if you leave quietly, we'll give you your last paycheck, and we won't convince the other factory in town (who is ran by this factory owner's brother-in-law) to fire your wife as well.

RE: Industry's understanding of Wii is flawed
By Keeir on 10/1/2007 5:15:26 PM , Rating: 3
I'm quite sure I understand the production technology enough to comment the issue.

Obviously you don't know everything.

#1. Nintendo originally planned (best case) on producing 4 Million by Jan 1st, 2007 and 6 million Wii by March 31, 2007 . Thats an original production rate of ~.66 million a month planned. However, since Jan 1st 2007, Nintendo is producing (based on sales) around ~.95 million ((12 million-3.5 million)/9) a month on average. You can agree Nintendo would have had a hard time significantly boosting production before Jan 1st 2007 right? Hmm, thats a boost of ~44% on best case numbers... which have historically been inaccurate. (IE, Microsoft, Sony and Nintendo failed to meet launch and original end or year targets for launch year)
#2. Nintendo likes to be profitable. As the number of units Nintendo produces based on short term demand increases, the Marginal cost of producing each unit increases. There is a cutoff point where the cost of producing the marginal unit of Wii console is no longer worth the income that will be generated from the sale of the console. Why? Because Nintendo does not control every aspect of Wii production. At some point there are suppliers who want to charge extra for decreased lead time or displaced work.
#3. Holiday Demand predicts are at this point probably quite High... The Wii sells around .2+ million per week right now. I imagine the predictions for Holiday time are in the .5+ million per week range. This would require Nintendo to double current production!

On meeting demand. Since Nintendo has not raised the price of the system there is no real benifit to increase demand in this fashion. Also, at this point every lost console sale is probably also a lost software sale of 1-2 units at least. (Paper Mario, Mario Party, Zelda, Metriod Prime, WarioWare IE Nintendo produced software). These software sales may never be recovered...

RE: Industry's understanding of Wii is flawed
By T3raYon on 10/1/2007 6:21:53 PM , Rating: 2
I had to do some digging. I'm not complete but a few points to mention.

Your math is right saying that Nintendo would need to deal with a significant increase in production. Question is do they really do that?

I checked their annual reports and it looks like to me (subject to some verification) that in the past years their capacity was to manufacture around 11million units worldwide. (I totaled the Wii + Game Boy Advance and GameCube since the later two got scaled down in production as the Wii emerged)
This 11million does not seem to be enough now. Apr-June 2007 alone was 4 million alone that brings the figure up to the 16million by the end of the year not even calculating with the holiday season extra demand. So your 44% growth looks like checking out.
What I also see at the same time though is, that the Nintendo DS managed to DOUBLE it's output (11million in 2006, 23million in 2007) so in terms of production flexibilities for me the possibilities are a bit better than 40%.
It appears to be that Nintendo was shifting resources to the DS side as probably couldn't afford an expansion in both areas?
All in all scaling up production is no miracle and DS is the proof it's possible...

Furthermore Nintendo never commented that it has supply problems from the parts manufacturers.

About the demand: I do not think not meeting the demand is leading to INCREASING the price (although in Canada despite the favorable exchange rate developments the Wii went UP by $10 (from $279 to $289)), but more KEEPING the price and not reducing it!

I commented on the theoretical "lost" sales somewhere else. (LOST vs. DELAYED)

RE: Industry's understanding of Wii is flawed
By Keeir on 10/2/2007 1:05:46 PM , Rating: 2
#1. Nintendo DS has been in existence from 2004 and the Lite version from 2006. This would allow significnat greater production fluctions (and time for increases) than the Wii. There is probably also a larger margin (due to falling component prices) for Nintendo to eat into for short term manufacturing. Maybe in 6 months, the Wii will be produced at 22 million a year. Who knows?

#2. There may not be shortage of parts, there may be a shortage of parts at a price Nintendo wants to pay... or a basic part that is just exhausted in terms of supply. That the Boeing 787 which has had some testing delays caused by inavailiblity of fasteners. Yep, Boeing couldn't secure enough fasteners with a 6 month lead time to get major sub assemblies put together correctly. At the 787 roll-out there were many incorrect bolts on the aircraft which will need to be replaced before first flight.

#3. Your entire posting scheme seems to be upset that Nintendo won't increase production past 44% increase in less than 1 year. Nintendo is trying! no company wants to lose money. They really are dealing with extreme demand! Nintendo is dealing with more than 2x the demand for the Xbox360 and headed into a Holiday Season with major games on the way...

Really stop whining and see where Nintendo is Jan 1st of this year. There is no way they can produce at 44 million a year pace (likely what will be request in the November-December time frame), but it will be interesting to see the spike.

RE: Industry's understanding of Wii is flawed
By T3raYon on 10/2/2007 2:52:15 PM , Rating: 2
I do not like the way your argumentation is going and also the fact that you are putting words into my mouth. I try to respect you and your logic especially because it is factual and you have strong and good points.

First of all I'm not "whining" as you put. I may seem to be "upset" that Nintendo is not increasing the production as I believe they could but in fact this is NOT what upsets me. I couldn't care less what they do.

My problem is - and this is what we're discussing here - that what Nintendo SAYS and communicates about the situation is different than what can be deducted from the facts. You can call me whatever you want but this is not something I like.

We discussed the production and supply issue and explored pro and con arguments. On the top of that I tried to argue that increasing production output by 100% isn't unheard of and Nintendo is the example of making it happen.

I do not want to apologize for not believing the "marketing speech" of the Chief of Nintendo :) I believe I have a right to do that, just like you to be more patient with what you think about the firm.

As you said it will be interesting to have a look at the Holiday Season performance and their next annual report.

By Keeir on 10/5/2007 2:00:54 PM , Rating: 2
First of all I'm not "whining" as you put. I may seem to be "upset" that Nintendo is not increasing the production as I believe they could but in fact this is NOT what upsets me. I couldn't care less what they do.

You made 12 or so posts with the same basic arguement. Most without providing any evidence or numbers.

The "facts" as you present them are flawed in this sitation revolve around the "belief" that a company can push a magic button and double or triple a complex supply chain overnight. Some companies can, for some products.

If you have some information/evidence that points to Nintendo willfully not increasing production as much as possible and remain profitably, please share. Until then, it makes little sense that a company that is printing money in both hardware and software would reverse its marketing stradgey (IE last year Nintendo kept stressing they believed they were going to "meet" a substainal portion of market demand) and IS increasing production over demand by a signifcant margin.

By theapparition on 10/2/2007 9:07:16 AM , Rating: 2
You do know that they can contract out manufacturing, in fact, they do so now. So increasing production is a non-issue if they wanted to. Nintendo would not be responsible for severence packages, and no plant closings needed when supply starts to exceed demand.

By ET on 10/2/2007 3:47:09 AM , Rating: 2
My point was that the Wii is never going to be able to offer games with the perceived high quality the market is rewarding so much (stunning visuals in High Definition for example).

I don't think that's mainly what the market is rewarding. Halo 3 isn't a success because it's a hi-def game. Sure, that's part (if it didn't have good graphics buyers would likely have been disappointed), but the main reason it's selling well is the strong brand.

The market does reward good looking games, but it doesn't reward "stunning visuals in High Definition", because most people don't care about that or understand it. People who buy the Xbox 360 or PS3 might care, but non-hardcore gamers don't. This is proved again and again with games like The Sims and World of Warcraft. Cartoonish graphics and good graphical design and polish do more than hi-def and shaders.

Also, "high quality" is mostly in the gameplay.

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