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Can Nintendo Unleash Wii U's Potential?

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November 27, 2012 – Comments (0) | RELATED TICKERS: NTDOY , MSFT , SNE

Nintendo's (NASDAQOTC: NTDOY) new console has been out for a week.  It's the most divisive console ever released.  For every glowing review you hear a scathing one.  Nintendo released a half-baked machine with sometimes clunky software, missing software, and half-baked ported games from other consoles just to get them on store-shelves by November 18th to capitalize on the holidays.

An investment in Nintendo is literally an investment in the future of the new Wii U console.  While Nintendo sold out the Wii U with over 400,000 units during its first week this didn't match Wii's sales comparatively, which did 600,000.  Though, Nintendo President of America, Reggie Fils-Aime has disputed the 600,000 figure citing NPD's figure of 495,000.  Which is right?  Who knows.  Reggie has also claimed in a CNN interview that graphics for 3rd party games on the Wii U "look dramatically better," including Activision's smash hit Black Ops II. This, despite respected technical groups such as Digital Foundry concluding Black Ops II graphics showed no improvement, and in some segments have inferior framerate playback.  Take it as a bad sign regardless that the Nintendo President is making factual claims that do not coincide with respected non-partisan groups.

Oh and in case you were wondering, 400,000 + units is a lot.  This figure surpasses both Microsoft's (NASDAQ: MSFT) XBox 360, and Sony's (NYSE: SNE) PS3's first week sales.  But it's competing against 6 year old technology, has the market to itself, and is milking the Nintendo faithful, the holidays, and the blue-ocean of Wii buyers it created.  So holiday sales figures shouldn't be given much weight.

To most everyone's surprise, Nintendo is selling their console with huge chunks of missing software, requiring you to download it on day 1.  The download is taking on average over 1 hour to complete even with a high-speed internet connection.  You may play games while the download is happening in the background, but then again, Nintendo has done such a poor job of communicating this that most new Wii U owners don't know that fact and will instead wait impatiently to begin using their new machine.  Talk about a Christmas morning problem.  Most of the launch games similarly require day 1 software "patches".

Nintendo similarly wasn't ready to deliver their advertised TVii service to early adopters, one of the three big draws of the new system (GamePad game play, and Mii-Verse social networking being the other two).  Nintendo claims it will be available for download in December.

The operating system of the Wii U doesn't perform to modern-day expectations.  Apple's iOS devices being the popular standard, to switch between games and applications on the Wii U currently takes on anywhere between 10 - 25 seconds.  For modern users this is excrutiatingly long for a system that begs you to use all of its different areas frequently.

Nintendo has shrouded the specifications for its CPU (central processing unit) and GPU (graphical processing unit) in mystery.  Nobody knows for sure how powerful they are, despite tech experts tearing the system down and analysing them.  The CPU is central to a game's performance, and needs to handle present-day and future games. While Black Ops II has been successfully ported to the Wii U at 60 frames per second playback, indicating a capable CPU, multiple developers from well-known gaming studios have lambasted the CPU citing its weakness as a primary reason they will not port versions of their games.  Who is right? Who knows. Similarly Nintendo claims superior Graphical power over other consoles yet there is no game currently that appears as if it could not be done on an XBox 360 or PS3.  If it indeed is noticably more powerful Nintendo has yet to showcase it. Suffice it to say that regardless of who is right, it is bad that Nintendo feels obligated to shroud the primary specs of its new machine in mystery, in attempt to keep focus on gameplay fun.

Nintendo added a touch-screen to the new Wii U controller, the GamePad.  This is the primary innovation of the system because it allows for game experiences you can't get anywhere else.  You can take the game off the T.V. and play it just on the controller, freeing the T.V. for someone else to use or just to watch a show at the same time.  You can take the GamePad into another room or into bed and play, providing it's within 25 feet of the console.  Players can have a different view of the game on each screen allowing for new ways to play with or against each other.  Characters in games can jump or travel from the T.V. to your lap on the GamePad screen - quite a cool effect.  The possibilities are numerous.  The GamePad controller is the manifestation of all of Nintendo's prior controller innovations wrapped into one.  It has a gyroscope, near field communication, a front-facing camera, motion control, and lots of buttons.  

And yet it is the most complex controller ever created.  In any system, the more complex something is the more there is to go wrong with it, and the harder it is to create for.  Regardless of the innovation Nintendo's new GamePad brings the general consensus is that the 3rd-party games don't utilize it well.  Ubisoft's (EPA: UBI) ZombiU has been the lone 3rd-party game to garner praise for its GamePad utilization, and yet, ZombiU has not been the smash hit Nintendo had hoped for.  Of all the launch games ZombiU has the 14th lowest score on MetaCritic (www.metacritic.com), the respected ratings aggregator.  So there's a very big question mark as to whether or not game studios like Activsion (NASDAQ: ATVI) or Electronic Arts (NASDAQ: EA) will adopt two-screen game development, and devote the necessary resources to it.  Especially when Microsoft or Sony unveil and release their new consoles, independent gaming companies like Ouya continue to make headway, tablet and smart-phone gaming marches on, and big players like Apple and Google threaten to enter the video-game world.    

What all of this adds up to for investors is, being a NTDOY bull is at this point, a very high-risk high-reward proposition.  All of the problems and struggles laid out above are still theoretically fixable. No one doubts the potential of Nintendo's new system, they just doubt Nintendo's ability to unleash it.  

Despite NTDOY's low valuation today, it is not a buy.  While Nintendo might be able to handle some of the above entirely, they need everything working on all cylinders, and that would be a magic trick indeed.  But as the old maxim surrounding Nintendo goes - never count Nintendo out.

 

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