Credit Suisse Analyst: Manufacturing Cost of Wii 45% Lower than Launch
by Jacob Mazel, posted on 06 April 2009 / 14,981 Views
Jacob Mazel
According to an article in the Financial Times , Wii now costs 45% less to produce than it did when it launched in November 2006. The context of the article implies that Koya Tabata an analyst at Credit Suisse is referring to Japan, but production costs for Wii in western markets have probably followed a similar decay rate.
The analyst noted the drop in Wii production costs mentioned the drop because he believes that if the PS3 run of hardware success continues, Nintendo has the option of dropping the Wii price while retaining a profit on every Wii it sells in Japan.
A 45% drop in Wii manufacturing cost, using the current Yen-Dollar exchange rate, means that Wii costs no more than $137.50 to make, even though the system sells at $250 (25,000 Yen) in Japan. Nintendo has always sold the Wii at a slight profit, so it is likely the system costs even less than that to make.
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62 Comments
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I hope this isn't too impertinent, but the Japanese effective standard corporate tax rate is abou 40.9%, so they nintendo really isn't making as much money as this article would presume. When you include local taxes, income taxes, and consumption taxes of the country, most of the money in Nintendo goes straight to the government - a govt that's in a spot of trouble and a world of hurt. Is nintendo keeping Japan afloat?
@NJ5: Sure, you're right. I'm just saying that the room to earn some cents is there.
@sirroman: But still that discount will dwarf in comparison to the cost reductions of the more advanced components (which the PS3 has many more of; that was the point of my reply to TheSource).
Come on people, the rising in UK is based on currency, they have all the right to do it! To drop the price right now is a wrong move, Sony is Sony, Nintendo is Nintendo. Sony thought that only losing money at each HW they would sell it, Nintendo is earning money at each HW and they sell it a lot. Wii became a BRAND, come on people, do you really think that clothes are sold based on their manufacturing cost? And also, somebody said that the casing can't have a drop of price, but yeah, it can: It's all about SCALE: buying more cases (50.000.000, anyone?), Nintendo can deal with the manufacturer to get a nice discount.
it is a little out of order to be raising the price by £16 in the UK when they started off making a profit and are now saving a further 45% saving on manufacturing costs... its simply out of order to be charging British customers such a steep price. as for the Sony and MS not lowering price arguments - they both sell their consoles at a loss to start, and Sony dropped the price on the PS2 after a year even though it was selling like hotcakes. I don't really believe that the strategy that Nintendo have adopted can really be defended, but they are a business, and they need to make money while they can. Can you blame them? they've got a hot product, that looks like it has no intention of cooling off, in the middle of a recession. They're going to squeeze every penny out of market.
I salute Nintendo. But I hope sales fall off a lil bit so they drop Wii to $199, and $149 rite in time for Zelda in Nov 2010.
megaman79 says: "If PS3 sold like this Sony wouldn't drop the price" Sony dropped the price for both PS1 and PS2 just 18 months after launch to 33% less (the PS2 was $200 on May 2002) and they were selling PS2s like the Wii AND all the while not making a profit on each console sold.
People are supporting the increase in price? Are you guys serious?
I think I read in an Article late 2006- Early 2007 that nintendo was making $50 Profit per Wii, therefore Production+Shipping was = (approx.) $200 Including the packaged Wiimote
Have the Wii sell for $150 and still make $12.50 per each console sold. So many people will be getting this instead of even the new DSi, Nintendo would end it all this gen, and gives a big slap to MS's $199 Arcade and their disregards at the Wii.
@JamesCizuz - You might really want to consider returning to school to learn basic math. $199 * 0.55 (i.e. a 45% reduction) = $109. If the new cost of production is 137.5 and the initial price was 199, then the cost reduction is (199-137.5)/199 = 0.309 or 30.9% It appears both you and the TC need some refresher courses.
@Godsmurf Huh? I think the use of of the word "guessing" saves this comment. If you want to know about a company's profit read their financial report, don't look at the stock price. So I suggest you read the Nintendo financial reports past\present (and future when released) then you won't have to guess, some have been posted around in these forums somewhere if you can't be bothered to search elsewhere. I see no reason for nintendo to drop wii's price. It's a product that is in demand. What business would do something as dumb as that? MS won't and neither would sony. MS was force to drop the x360's price to compete. The wii was never (and unlikely in the next couple years to be) in that situation. MS can afford to throw away money and cover it with Windows money, Nintendo can't. As for Japan, the pathetic amount of consoles currently being sold there isn't worth the bother of a price cut. What the wii needs in Japan is games.
@Godsmurf stock price is a reflection of the financial market as whole. The stock market has crashed as a result of the financial crisis. The fact that a company has seen a great drop in stock price has no bearing on its profits. I am sure when Nintendo's results are released for financial year ending March 2009 their profits would be very very healthy although it would be less than it would have been if not for the appreciation of the value of Yen.
Nintendo will not cut prices anytime soon. They are still outselling the competition and selling as much as the PS3 and 360 combined. The fact that the PS3 is outselling Wii in Japan right now is more of a statistic than a sign of changing trends, simply because of the volume. The PS3 is selling 10% more but again, only 20.000 vs 18.000 and given the fact that the gap is almost 5.000.000 in Japan, it's almost nothing. Right now, Japan is not a reference in hardware sales since it accounts for only 6% of the console market (Wii, 360 & PS3).
Why are people whinging that Nintendo aren't passing the benefits on? It would be madness - they'd instantly go back to having a massive supply shortfall.
Nintendo's stock price is exactly half of what it was at its peak in late 2007. So I'm guessing they're not making *that* much profit.
@ramses01 Not wrong. To add percentage towards an object all you need to do is times the amount now by a percentage. Easiest way to do this is to times it by 1.45, the 1 means keep original number, and 45 represents percentage. It comes out to around 199$, which is exactly what wii cost when beginning production.
RedWiizard is right on the money. All that matters for corporations is supply and demand, not concerns such as "fair profit margins" (they don't exist from their perspective) or similar. It's not like the Wii is a primary need either, it's a luxury good just like any other console. Furthermore Nintendo doesn't have a monopoly on consoles, so there's no reason for them to limit their prices.
Also, demand dropped in Japan which would justify a price drop. But they couldn't drop the price in Japan only, at least for the image in other continents. They would have to drop the price in Eu and US as well a few month later. This is why they won't drop the price (even in Japan) before the slow down spreads to other regions.
As many have already said, N. is selling at 250$ every wii it can produce despite having increased production by nearly 2 compared to nov06. What does that mean? It means the wii is worth 250$ or even more since demand exceeds production. If you want to see the wii retail price drop, stop buying it. You should know that retail prices have nothing to do with production costs. Only demand and offer matter. This is why a 840$ to produce PS3 was sold 600$ and a 170$ to produce wii was sold 250$.
if there is going to be a price drop it will be in japan. year or two after monster hunter is released and that is a big maybe. they would be stupid to drop the price u don't see apple dropping the ipod touch or iphone. just keep a set price.
Why the hell should Nintendo drop the price? as long as people pay 250$ there is no need for them to drop it, that's just stupid.
@Squilliam - I agree with you - I even remember reading something about them adding manufacturing capabilities that cost more than they expected. It has been stated MS in breaking even then I can see the Wii being that cheap to make after all this time. Nintendo knows how to make a console. Still got a working NES - 3 Ps2's Dead. 4 xbox 1's dead. - but I did play the hell out of them!!
Maybe the author of this should learn to correctly link to the source-article. Or it didn't happen!
Nintendo should bail out this global economic recession the rest of us are in. It's not like they need all that money : P
Nintendo will NOT be dropping price anytime soon. The *only* reason for a price drop, would be a considerable drop in demand - and this has only happened in Japan. Once Motion+, Monster Hunter and a few other titles hit - we'll see if there is any real weakness in Japan. I personally think a Wii + WiiFit bundle would be much more effective...
cmon nintendo do a price drop already we all know your pockets have alot of cash
I suspect that in the short run the Wiis costs actually rose before they fell as Nintendo struggled to keep up with demand. For example 100,000 gyroscopes may cost $2 each, but 1,000,000 may cost $3.50 each due to the cost of expanding the facilities, overtime etc.
It's kind of sad that those of us who actually seek this information out have forgotten that the vast majority of consumers not only cannot seek it out, but would not even if they could. To most consumers, what matters is if what they get is worth the price to them. That is what Nintendo based the price of the Wii on initially, working within the confines of being able to produce the system at a profit as well. Unless the overall market's impression of the Wii shifts so that the average consumer values the system less (which is unlikely, as it still holds its Blue Ocean market advantage), it's not getting a price drop.
There's no point in them dropping the price if every Wii they manufacture is still being sold. They've increased supply how many times since launch and still selling them as fast as they can make them? Maybe they should increase the price? :) If they start to see a drop in sales, then they might drop the price instead of idling factories. And of course you guys want the price to come down, you're consumers :) (Even though you've all probably bought a Wii, so you already accept it was worth $250 ;-))
and yet refuse to do price cuts. hmm nintendo u can help the gamers get the console, rather that raising the prices. but for for nintendo profits are first.
This is part of the reason Nintendo is making money, hand-over fist...They ar ecompletely in the driver's seat on when to cut their prices, and if ps3 continues to do well in Japan, they will, and force sony to take some more lumps, imho.
This makes sense isnt like the Wii uses any new massively powerful graphics cards or what ever....so their cost for manufacturing basically a Gamecube X 2 is way less than a 360 or Ps3...I think the most money Nintendo spents on manufacturing the Wii would be on it's controller...360 and Ps3 should pray Nintendo does NOT drop the price of the Wii to 200 or even worse 150 :( Wooooo...probably see 3 Million Wii's being sold a month lmao....
NJ5, when you take into account the Wiimote then the Wii isn't less technologically advanced. Those controllers made up a significant portion of the cost due to their newness, and the fact that the technology in them isn't new anymore is probably where a very large portion of the cost-cutting has come in for Nintendo.
@TheSource: The Wii is technologically less advanced, so I would expect its cost drop to be slower (especially considering that these manufacturing cost estimates usually don't include stuff like controllers which is the more advanced part of the Wii). The fact that it was cheaper than PS3 also makes it harder to reduce costs percentage wise, since there's a fixed cost which just didn't go down yet (for example the case which can only be reduced by slimming the console).
Is it really that ludicrous a drop? The 60 Gig PS3 supposedly cost $840 to make according to iSupply in November 2006, and as of a few months ago iSupply put the $400 80 Gig PS3 at $449 to make.
While production costs for the Wii have doubtless dropped, it is extremely unlikely that they have dropped as much in this short a time as this ludicrous claim would have us believe.
wow so basically at any point they could easily lower the price of the wii to $150 or lower and still make a nice profit.
Nintendo is not raising the price of the Wii in England. The English banks, by printing money to bailout bankers, are raising the effective price of EVERYTHING in England. If you have a problem with the Wii price, call up your local pol and ask for your own little bailout!
Since I'm not registered at that site, I couldn't read the article. But 250*0.55 = 137.5 This means that the initial cost of the machine was calculated to $250. It sounds just a bit too neat to feel real. Hence I'm going to ignore this article and not in any way consider it proof of anything.
@megaman79: Hehe, what margin of profit does Microsoft have at that? Should be 10000% xD
i dont care if they r making a profit.... but cant they atleast give an extra controller to show that they at least care about the customer?
It's not wrong for Nintendo to increase the price, unless you think there's a maximum amount of profit that corporations are allowed to make. By the way, is there any evidence that Nintendo's price raise actually affected customers? As far as I've seen it has just reduced retailer's profit margins on Wii hardware.
@Gamerace that's exactly what I was thinking. It seems that even with the exchange rate they are still making more money than at launch and rather than just keeping the price they are increasing the price. Seems wrong to me.
@Killer, its not greed. When you consider the godlike proportions of market share the DS and Wii will make Nintendo might never have sales like this ever again, or atleast for another 2 generations. Damn right theyre making money now and they deserve to after the work they have put into growing the industry. If PS3 sold like this Sony wouldn't drop the price. Friggin Windows is a ridiculous rip off, its a dvd of copied information.
Well the British pound bought 230 Yen in December 2006 when Wii launched, to 145 Yen per pound today. The price raise in the UK is to protect Nintendo's profit margin not to gouge customers. Sony had been forced to do the same thing.
Free Motion Plus Nintendo. That or build it inside the wiimote as soon as possible. DO IT
While ultimately even the experts are guessing at the exact amount it's a total no-brainer that Wii production costs have dropped just like 360 and PS3's. So Nintendo could drop price whenever they like and still be profittable. But instead they have raised them in the UK to compensate for the poor exchange rate so I'm not holding my breath for a price drop anywhere.
I asked about the Wii manufacturing costs several months ago in a threadbut there was no solid answer. If this is true I wouldn't have a hard time believing it at all. I originally though the Wii cost $179 to produce at launch though. This would make it just $100 without factoring in exchange rates and such. Imagine how many price cuts Nintendo could utilize if it was that low or even $150.
The math at the end is extremely faulty. 45% reduction is off of the initial manufacture price. Since the Wii sold for a profit day 1. The initial cost had be ~$175 or lower.
