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Nintendo will report its yearly earnings this week — expect weak Wii U sales

Above: Nintendo's Wii U is struggling, and it is hurting the company's financials.

Image Credit: Nintendo

Correction: This article originally referred to a Nintendo press briefing held on May 2. That was incorrect. The actual briefing took place in January. We apologize for the error.

While Super Mario’s Mushroom Kingdom is sunny and filled with smiling clouds, that’s not how anyone would describe Nintendo’s financial situation.

The Wii U’s dismal performance continues to hurt Nintendo. Earlier this year, the company warned investors that it expects to report a $240 million loss for its fiscal year, which ended March 31. We’ll see if that comes to pass when the company files its year-end report on Wednesday. The Japanese game maker previously told investors it was aiming for a net profit of $539 million, but that’s likely not going to happen. Nintendo also expects its revenues to take a 36 percent year-over-year nosedive, and its latest home console is the biggest reason for these grim numbers.

Despite releasing big-name software for the Wii U like Super Mario 3D World, Donkey Kong Country Returns: Tropical Freeze, and Pikmin 3, Nintendo expects to report that it only sold 2.8 million systems worldwide. Nintendo originally hoped to sell 9 million throughout its fiscal year. That means the company might have only sold around 400,000 Wii U consoles in the first three months of 2014. That’s compared to huge numbers for Xbox One and PlayStation 4, which consumers continue to scoop up each month. Since November, Microsoft has shipped 5 million Xbox Ones to retail while Sony has sold more than 7 million PlayStation 4s to consumers around the globe.

“In the year-end sales season, which constitutes the highest proportion of the annual sales volume, software sales with a relatively high margin were significantly lower than our original forecasts mainly due to the fact that hardware sales did not reach their expected level,” reads a Nintendo statement from January.

For Nintendo, glacial hardware sales are only the beginning of the problem. A smaller install base means fewer people buying games.

He noted that demand for the Wii U is especially weak in the U.S. and Europe, which are two of the most important markets besides Japan.

He did not elaborate on his plan to reinvigorate Nintendo, but the company did recently announce that it will hold a special “digital event” during June’s Electronic Entertainment Expo trade show to demonstrate its new products. That includes the anticipated Super Smash Bros. fighting-game sequel for Wii U and 3DS.

Nintendo has struggled to sell Wii U hardware since debuting the console in November 2012. The system, which is the company’s first device capable of high-definition graphics, has relied on familiar franchises like Mario and Pikmin — but those are not wowing the mass market like they once did. Instead, attention has turned to the much more powerful systems from Microsoft and Sony.

To compete, Nintendo dropped the price of the $350 Wii U Deluxe model, which comes with 32GBs of storage and a game, by $50. That boosted sales somewhat, but it didn’t create sustained demand.

Nintendo’s 3DS handheld system is performing much better, but it is also facing competition from devices like tablets and smartphones. Mobile apps generated $16 billion in 2013, and it’s likely that some of that money came at the expense of more traditional gaming devices and software.

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