By Yoshiyuki Osada and Isabel Reynolds
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The creator of the Super Mario franchise dominated the industry for years with its DS handheld games players and Wii home consoles, but is now struggling to keep up with more versatile gadgets like Apple's smartphones and tablets.
This year's failed launch of its 3DS handheld games machine forced Nintendo to slash prices, crushing its profit outlook for the year, while a dearth of attractive software and the yen's strength against the euro are causing further pain.
Nintendo expects an annual net loss of 20 billion yen, its first such loss in history and also slashed its full-year operating profit forecast to just 1 billion yen from 35 billion yen.
In the latest quarter, it tumbled to a 19.6 billion yen ($258 million) operating loss, a slightly bigger loss than the market had expected and much worse than the company had forecast. That compares with a 30.9 billion yen profit in the same period last year.
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Nintendo chopped its forecast for sales of 3DS software by 30 percent to 50 million units for the year to March, but left its 3DS hardware forecast at 16 million units for the year, a target fund managers said might be hard to achieve.
"I think its highly optimistic," said Yuuki Sakurai, president of Fukoku Capital Management in Tokyo. "I think they need to change their strategy drastically."
"Now that people can do so much on their smartphones, will they want to buy a games machine?" he said, adding that global economic uncertainty would also likely weigh on the stock.
The Kyoto-based company, which generates 80 percent of its sales overseas, also faces a massive hit in earnings from the soaring yen, which has crushed the value of profits repatriated from abroad, especially from the euro zone.
The company took a 52.4 billion yen charge after reassessing its foreign currency-denominated assets as of the end of September, it said.
President Satoru Iwata said the WiiU, the successor to the highly popular Wii home console would be shown in its final form at the E3 games show in the United States next year and launched after that. An initial version of the WiiU shown at this year's E3 garnered some positive reviews from gamers but triggered a slide in Nintendo's share price.
($1 = 75.990 Japanese Yen)
(Editing by Edwina Gibbs)