Nintendo Co. sank into a 43.2 billion yen ($533 million) loss for the fiscal year just ended as weak sales of the Wii home console and the strong yen eroded earnings.
Kyoto-based Nintendo, once the star of video games with franchises like Pokemon and Super Mario, has seen its glory fade with the advent of smartphones that are wooing away casual gamers.
Nintendo, whose products compete against offerings from Microsoft Corp. and Sony Corp., acknowledged sales suffered because of the price cut on the 3DS during the fiscal year.
Such price cuts are relatively common to boost slow sales and try to make up in profit later from game software sales. But that strategy has chipped away at Nintendo's earnings.
Nintendo, which did not break down quarterly numbers, had reported a 77.6 billion yen profit the previous fiscal year.
But the company was upbeat about a turnaround on the back of the upgrade to its Wii called "Wii U," set to go on sale at the end of this year — critical because of year-end shopping revenue.
Nintendo also said it will continue pushing its online "Nintendo Network" service that will link players of the Wii U, which will come with a touch-screen controller, with those of its handheld Nintendo 3DS offering three-dimensional imagery.
Nintendo President Satoru Iwata has repeatedly denied smartphones are a threat to his business. In the past, Nintendo scored success by appealing to people who aren't hard-core gamers.
Iwata has said the company has learned from the mistakes of the 3DS launch and will do the Wii U launch right.
Nintendo's annual sales plunged 36 percent to 647.7 billion yen ($8 billion). That was worse than the company's earlier forecast at 660 billion yen ($8.1 billion) and the 670 billion yen ($8.3 billion) analysts surveyed by FactSet had forecast.
Nintendo sold 9.8 million Wii machines over the fiscal year just ended, fewer than the 15 million it had sold the previous fiscal year, and below its initial hopes of selling 13 million machines.
It remained optimistic for the fiscal year through March 2013, and forecast sales of 10.5 million Wii machines.
Also damaging for Nintendo was a strong yen, which erodes the value of overseas earnings of Japanese manufacturers. The dollar dropped to 70 yen levels in recent months, although it has recently recovered to about 80 yen.
Nintendo stuck to its forecast for the fiscal year ending March 31, 2013, to swerve back into the black at 20 billion yen ($247 million).