People severely under-estimate how badly the strong yen has hit Nintendo. When 80% of your business relies on Europe and North America, markets with very weak currencies currently, and with the currency your balance sheet operates in currently at historically high levels, Nintendo are being pounded far more than other Japanese exporters, because other Japanese exporters have other markets to rely on.
As it is, pricing Wii U at $350, with current and near-future exchange rates, basically means $175 for Nintendo's bottom line--but obviously you have to take out manufacturing and distribution costs. It's not surprise Nintendo are losing money on each unit given the costs of manufacturing and the strong yen versus the weak dollar/euro. For every dollar, Nintendo effectively lose 50% of its value when that money goes on their balance sheet. For every euro or pound, Nintendo lose up to 40% of that value. Nintendo's profits during the boom of Wii and DS weren't just thanks to absolutely monstrous sales, they were also assisted by favourable currency markets.
If the yen wasn't so strong right now, the conversation and narrative wouldn't be about how endangered or threatened Nintendo's business is during this transitional period, or how uncertain their financial future is; the narrative would instead be about how resilient Nintendo are, and people would be marvelling at their ability to grind out profits in such a tough and competitive environment. The fact they're returning to profit 12 months after their first full year loss is a testament to the strength of Nintendo's core business.
Let's not lose sight of the big picture here. In an increasingly competitive market, with ever more platforms and business models to compete against, during a console transition that has seen Wii sales drop off a cliff and 3DS sales initially struggle, pitched against currency markets heavily damaging their ability to move on price and to post 'Nintendo-like' revenue and profit figures, Nintendo are still capable of turning a small profit. Even more impressively from a business perspective, their response to this transitional period and the apparent crisis they face is to do something their competitors have been forced to do for the last decade or more: sell their hardware at a loss from day one. The position Nintendo have been forced into adopting is the position their rivals have always started a console cycle from.
It's tough times for Nintendo, for sure, but they are incredibly resilient. If currency markets shift in Nintendo's favour, these conversations will go away very quickly. Even without that happening, with an increasing and increasingly profitable 3DS market, the establishment of Wii U on the market and an increasing focus on digital business, Nintendo's finances will turn around very quickly indeed.
