Jeffrey M. O’Brien — Wii Will Rock You
Jeffrey M. O’Brien writes in Fortune Wii Will Rock You
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While Sony and Microsoft lose money on hardware in hopes of seeding the market with their consoles, analysts say Nintendo makes about $50 on every unit. It may not sound like much, but the company plans to sell 35 million of these things over the next few years. That’s $1.75 billion in potential profit. Add that to the ridiculous earnings from the company’s handheld gaming device, the Nintendo DS, as well as software sales and licensing revenue, and you begin to understand why Nintendo’s market cap just passed $45 billion, an all-time high. Nintendo trades on the Tokyo and Kyoto stock exchanges and as an ADR in the U.S.
More difficult to comprehend is how a company founded 118 years ago as a maker of playing cards in Kyoto came to be pummeling Microsoft and Sony. The answer has something to do with reinvention. From industry-changing arcade machines to handhelds, 3-D graphics to immersive game play, Nintendo has shown a knack for leapfrogging its industry. Sure, some initiatives failed - a toy vacuum cleaner, a taxi service, a chain of “love hotels” - but the company rarely fails to surprise. And if the Wii shortage demonstrates anything, it’s that this time, in changing perceptions of gaming, Nintendo has surprised even itself.
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In short, Iwata has made Nintendo as efficient as a bullet train and as stingy as a bento box. The company’s 3,400 employees generated $8.26 billion in revenue last year, or $2.5 million each.
While exchange rates and fiscal calendars complicate comparisons to U.S. companies, let’s do it anyway. Over roughly the same time frame, Microsoft employees generated $624,000 each; Google’s performed 50 percent better, at $994,000, though still less than half as well as Nintendo employees. Nintendo’s profits reached almost $1.5 billion, or $442,000 per employee, last year, compared with Microsoft’s $177,000 and Google’s $288,000.