I would be guessing they have begun to stockpile for the holiday, cause it is potentially going to be a MASSIVE one for Nintendo if they can deliver. Expect sell-outs. If they put away the extra 300,000 per month starting now, they could stockpile almost 2 million by mid-November which would give them around 3 million Wiis for November. It won't be enough, but at least they'll have tried.

 Oh.

 Well holy hell.

Increasing production is as risky as archmagus said -- no one can reasonably deny that -- but it's a risk that Nintendo needs to take, and a risk that they can afford to take.  The Wii is already very profitable, and there is at least enough demand out there to eat up several million more units.  In a worst-case scenario, Nintendo would increase production and not sell out immediately, but they could store these and then easily deplete a stockpile of a few million Wiis this holiday season, especially with Mario/Metroid/Brawl coming out.  Remember that Nintendo is not taking a loss on Wii production, they sell tons of first party software, they have the Virtual Console, they have the DS continuing to print money -- it's a no-brainer, take the risk.

Adding production probably is going to come with minimum contracts, and they might also come at higher costs per unit If demand falls off suddenly, Nintendo could already be stuck with huge excessive inventory. If demand falls sharply at the same time production increases, it can be risky... That said, I think they could up production to 2 mil a month between now and the 1st of the year with little risk of not being able to sell them quickly...

I honestly think that there are two forces at play here, Nintendo being overly carful and the Wii feedback loop.

I could be wrong but I suspect Nintendo's approach to manufacturing is to

1. Introduce new production
2. Observe reaction to new production (2 months)
3. If production levels are not adequate work towards increasing production (2 months) and goto 1

This cautious approach means that they're unlikely to overshoot demand by much but also means that production increases take time.

At the same time everyone who buys a Wii ends up showing it off to all of their gamer and non-gamer friends which causes a large portion of them to want one of their own. This feedback loop means that as production increases to meet demand, demand increases beyond what can be supplied. This loop is probably not going to be active forever but is probably causing endless problems for Nintendo as they try to figure out how many systems to produce.

If you add the Wii together with the DS, Nintendo is shipping 3+ million hardware units each month. No game company has ever sustained that level of production before. Give them some credit for that at least.

They could ship 40-50 million units this fiscal year. That is simply unprecedented.

Anyways, they've increased production by 500k in about 4 months. That means by the holidays they could be up to 2.5 million a month. That would put them on track to easily beat 20 million for the fiscal year, well above their initial estimate of 14 million.