sc94597 said:
Way to pull my quote out of context. I never stated that higher revenue => higher profits from hardware. The revenue statement was one in a sequence of arguments presented in my post to argue the likelihood of at least 0% gross profit (breaking even.) In fact, you are arguing my point now. A +/- 5% profitability on hardware is quite similar to saying that hardware research and development costs are at the least covered by hardware sales. That was the point of my post. |
You made the point that "allows us to conclude that software sales have never made up for hardware costs". My point was (a) that the fact that revenue from hardware is higher doesn't mean squat, and (b) you can't conclude anything about the hardware costs, or about covering the R&D costs from revenue.
You seem to think that +/- 5% Gross Profit on hardware means that R&D costs are covered. This is incorrect. R&D costs are not counted in Gross Profit.
Some accounting term reference (with Nintendo's numbers for last year)
Revenue = Income from sales. (571,726 million Yen)
Cost of Sales (COGS) = Costs related to production (components, manufacturing costs). (408,506 million Yen)
Grooss Profit = Revenue - Cost of Sales. (163,219 million Yen)
Selling, General and Administrative expenses (SG&A) = all costs other than production, including R&D, sales, marketing, administration, etc. (209,645 million Yen)
Operating Income = Gross Profit - SG&A. (-46,425 million Yen)
You seem like a person that likes to do reserach, so I hope that helps clear things for you. Gross Profit can cover the R&D only when you have sold enough units.
Example: If I spend $300 Million on R&D for a new product, and then produce the product for $290 and sell it for $300 I get $10 Gross Profit each. Now if I sell 10 Million of my product, I'll have made $100 Million Gross Profit. Overall, I'm still $200 Million away from breaking even. I would break even after selling 30 Million units.
Since Nintendo announced that they are no longer losing money on selling Wii U, they've only sold maybe 3 or 4 Million units, so think how much Gross Profit they could have made. $40 Million? It may not even have covered the loss they made for selling Wii U at a loss before, let alone cover the R&D cost.
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sc94597 said: Now if Nintendo can reduce its software costs by producing hardware that enables that, it is a no brainer. Software sales will be more profitable on their hardware than their competition's. For reasons I illustrated: lower costs, saturatation of targetted consumer base on one platform, etc, etc. So what are some opportunity costs Nintendo forgives when it only produces software on its platform? A larger userbase to sell games to, and that is about it. |
Their opportunity cost is potential sales to 25 Million userbase on PS4/XB1 and growing.
- Mario Kart Wii (101M userbae) = 35 Million sales.
- Mario Kart 7 (42M userbase) = 10 Million sales.
- Mario Kart 8 (8M userbase) = 3 Million sales.
Wii is best example that Nintendo games can have a large audience, much larger than core Nintendo fans buying Wii U.
What does "more profitable" mean to you in this context?
a) More profitable, as in gross profit per unit sold?
b) More profitable, as in return on investment (ROI) is higher?
c) More profitable, as in total profit?
Your arguments support (a) which is the least useful measure. Publishing on multiple platforms supports (b) and 
, which is what a Nintendo investor would care about.
