Wii woes for the wee ones on Xmas

Nearly a year after its popular videogame console debuted, Nintendo is still plagued by supply problems; warns of shortages until early next year.

By Yi-Wyn Yen, Fortune reporter

SAN FRANCISCO (Fortune) -- Thousands of angry videogame fans are hitting the blogosphere as word spreads that Nintendo won't be able to deliver enough of its popular Wii gaming console to meet demand this holiday season.

Reggie Fils-Aime, president of Nintendo of America, told Fortune that the company won't catch up with demand until "early next year."

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Nearly a year after the Nintendo Wii went on sale, there still aren't enough to go around.

Nintendo has struggled to supply enough consoles since it introduced the Wii last November. So why didn't the company just ramp up production in anticipation of another hot holiday selling season?

"The challenge is in demand, not supply," Fils-Aime says. "We planned optimistically for the launch, but no one could have foreseen how much more popular Wii would be than any other system in memory."

Increasing production, he adds, "is not as easy as flipping a switch."

Fils-Aime argues that calculating demand for consumer electronics products is difficult, which is why companies often ship a controlled number of units. Analysts estimate that Nintendo figured it would need to make 13 million consoles worldwide, but ramped up production nearly 30 percent when that estimate proved too low.

In the United States, Nintendo's goal was to ship three million Wiis for the first nine months of this year, and it's on track to deliver another three million in the remaining three months of 2007, according to Arcadia Research.

Fils-Aime acknowledges that won't be enough. "We're doing everything we can, but really, we won't be able to gauge how big demand is until we finally fill it," he explains.

That's small consolation for gamers. "After awhile you'd have assumed that Nintendo would've taken every possible step to correct this problem," fumed gaming fan DiatribeEQ on Neogaf.com, a videogame industry site. "But every month, for almost a year straight, they haven't. This just keeps the shelves empty and fuels mass paranoia to buy it now."

Michael Pachter, an analyst with Wedbush Morgan Securities, says Nintendo is playing its Wii strategy right. "Excess capacity costs money," he says. "It doesn't make sense to make two million more to accommodate capacity they won't need six months later."

Nintendo is known for being a highly disciplined company that rarely deviates from its master plan. "This is almost predictable behavior for Nintendo," says John Taylor, an analyst with Arcadia Research. "They set a plan and stick with it."

Yet, for all Nintendo's reasons for its supply problems, no other videogaming company has faced such severe shortages for so long.

This year, Nintendo sold 2.94 million machines in the United States through August. That's roughly double the sales of Microsoft's (Charts, Fortune 500) Xbox 360 and nearly triple that of Sony's (Charts) PlayStation, according to the NPD Group, a market research firm.

David Riley, a NDP spokesman, says Fils-Aime is smart to warn Wii shoppers about looming shortages now.

"This isn't about building more hype to increase demand," says Riley. "He's trying to manage expectations now so that the week before Christmas you don't see a lot of upset customers wondering why they can't find the Wii anywhere."  Top of page