Industry and Sector Analysis Market for Video Games 2009 A l o n g w i t h e v e r y o t h e r s e c t o r , t h e v i d e o g a m e s sector has harshly been affected by the

economicc r i s i s o v e r t h e p a s t 2 y e a r s . G r o w t h i n s a l e s i n video games globally was lethargic, reaching morethan US$66.2 billion in 2009, with just an increase o f o n l y 0 . 4 % o v e r t h e p r i o r y e a r . O n t h e p o s i t i v e side, the emerging regions of Asia Pacific, MiddleE a s t a n d A f r i c a s a w s a l e s i n c r e a s e o f m o r e t h a n 7 % t o 2 1 % . I n c o n t r a s t , a l l o t h e r m a j o r r e g i o n s experienced rough declines in sales in 2009. Figure 1 underlines the abrupt halt in software aswell as hardware sales in 2009: Figure 1 Largest Markets for Video Games D e s p i t e t h e r e c e n t s a l e s g r o w t h i n e m e r g i n g markets, the video game i n d u s t r y i s s t i l l h i g h l y d e p e n d e n t o n t h e d e v e l o p e d c o u n t r i e s . T h e f a c t that the 10 largest markets accounted for more than7 4 % o f t o t a l s a l e s w o r l d w i d e i n 2 0 0 9 c l e a r l y s u p p o r t s t h a t d i a g n o s i s . I n f a c t , t h e B i g F i v e (US, UK, France, Japan, China) solely accounted f o r m o r e t h a n 6 0 % o f t o t a l g l o b a l V i d e o G a m e sales last year. Consequently the economic setback has affected these core markets most severely, withJ a p a n s r e a l G D P g r o w t h r a t e f o r i n s t a n c e dropping from -0.7% in 2008 to -6.4% in 2009. USr e a l G D P g r o w t h f e l l t o - 3 . 1 5 % i n 2 0 0 9 , d o w n from growth of 1.1% in 2008. Figure 2 displays the most important markets in regards to consumption per capita: Figure 2 Key Trends One key market issue for the future of the videogames and consoles industry is t h e c h a l l e n g e o f c h a n g i n g d e m o g r a p h i c s , w h i c h h a s u n d e n i a b l e implications to the industry structure. The industry p l a y e r s a r e b e g i n n i n g t o s e e t h e a g i n g p o p u l a t i o n a s a n o p p o r t u n i t y : F i n a n c i a l l y c o m f o r t a b l e b a b y boomer grandparents are increasingly targeted to b u y v i d e o g a m e s f o r t h e i r g r a n d c h i l d r e n . A t t h e s a m e t i m e , p i o n e e r v i d e o - g a m e r s o f t h e f i r s t generation, mainly 35 -40 year olds, continue t o spend their increasing incomes on video games. Onthe other end of the spectrum, children are gettingexposed to video games younger, caused by strong g r o w t h i n b o t h p r e - s c h o o l and infant games-subsectors. Additionally, women are broadly beginning to enjoy video gaming, reflected bynewly introduced customized products such as P r o j e c t R u n w a y b y N i n t e n d o a n d f e m a l e advertisement leaders like the Frag Dolls, an all -g i r l t e a m o f g a m e r s r e c r u i t e d b y U b i s o f t t o promote women in the gaming industry.Another recently observed trend in the industry are c o l l a b o r a t i o n s t r a t e g i e s a m o n g g a m e manufacturers to lighten the cost -pressure of game d e v e l o p m e n t a n d open strategically relevant, newm a r k e t s . E x a m p l e s f o r t h i s t e n d e n c y a r e Nintendos cooperation with local TV-networks ont h e c r e a t i o n o f n e w c h a r a c t e r s a s w e l l a s Electronics Arts partnership w i t h H a s b r o t o develop online version on current Hasbro products. Video gaming consoles typically have a life -cycleof around 5 to 6 years from introduction to retreat.G e n e r a l l y , a f t e r a b u r s t o f s a l e s a t t h e i r i n i t i a l a d o p t i o n , h a r d w a r e s a l e s t e n d t o s l o w d o w n o v e r the years and console manufacturers and software companies benefit largely from long-term revenuesin game sales.I n t h e p a s t , N i n t e n d o h a s b e e n h i g h l y successfulw i t h i t s i n t e r a c t i v e , n a t u r a l g e s t u r e i n t e r f a c e c o n s o l e W i i , w h i c h p r o p e l l e d i t t o t h e t o p o f global toy and game manufac turers in t h e r e c e n t years, capturing an overall market share of almost10%. Consequentl y all three dominating leaders int h e v i d e o g a m i n g i n d u s t r y N i n t e n d o , S o n y a n d M i c r o s o f t a r e a i m i n g t o d e v e l o p c u t t i n g - e d g e motion sensor technology for their next generationconsoles. Microsoft is expected to release its long p r o m i s e d P r o j e c t N a t a l i n the recent future aground-breaking motion sensor console while N i n t e n d o a n n o u n c e d a f o l l o w - u p f o r i t s D S coming with an innovative 3D control panel by thee n d o f 2 0 1 0 . C o n s i d e r i n g t h e u s u a l p r o d u c t l i f e - cycles, we are expecting the release of additionalf e a t u r e s a n d d e v i c e s f o r N i n t e n d o s W i i p l u s a next-gen successor before the end of 2011. Sonya l s o r e m a i n s o n p a t h t o d e v e l o p i n g n e w c o n t r o l s c h e m e s f o r a n a t u r a l g e s t u r e i n t e r f a c e f o r i t s gamesBesides new control schemes, interactive gamingwill continue to be among the key selling points of n e w p r o d u c t s . A t t h e

s a m e t i m e , s u c c e s s w o u l d r e l y g r e a t l y o n t h e p o p u l a r i t y o f t h e c h a r a c t e r s , upon which blockbuster games are based on. Nintendo Company Analysis Brief History N i n t e n d o C o . , L t d . i s a multinational corporation l o c a t e d i n Kyoto, Japan. F o u n d e d o n S e p t e m b e r 2 3 , 1 8 8 9 b y F u s a j i r o Y a m a u c h i , i t p r o d u c e d handmadehanafuda(playing) cards. According to Nintendo'sTouch! Generations website, the name"Nintendo" is translated from Japanese to English, meaning "Leave Luck to Heaven". Nintendo developed into a video gamecompany inthe 1970s, becoming one of the most influential in theindustryand Japan's third most valuable listed c o m p a n y , w i t h a m a r k e t v a l u e o f o v e r US$85 billion. Nintendo is also currently the majority owner of theSeattle Mariners, aM a j o r L e a g u e B a s e b a l l team inSeattle, Washington. S a t o r u I w a t a , p r e s i d e n t a n d C E O o f N i n t e n d o , m a n a g e d t o p i c k u p t h e p a c e o f c o m p e t i t i o n through the launch of the Wii console in 2006 anda n n o u n c e d f u r t h e r b r e a k t h r o u g h r e l e a s e s f o r t h e coming years. Nintendo Co., Ltd. N i n t e n d o i s o n e o f t h e l e a d i n g g l o b a l m a r k e t players for both video hardware, and software g a m e s . P r o d u c t s i n c l u d e G a m e B o y , M a r i o , Donkey Kong, Pokmon and The Legend of Zelda.A l t h o u g h N i n t e n d o i s p u r e l y focused on the production and distribution of hardware a n d software for the video games market, it offers a w i d e p r o d u c t p o r t f o l i o r a n g i n g f r o m N i n t e n d o Game Boy Advance, Game Cube, Nintendo DSand N i n t e n d o W i i . I t a l s o p o s i t i o n s i t s e l f i n t h e higher end of market, being one of the innovatorsin the video games market operating both in Japanand abroad.T h e N i n t e n d o D S a l r e a d y i s b e c o m i n g t h e b e s t - selling portable console ever with 80 million units s o l d globally, and is expected to beat the 100 m i l l i o n - u n i t c o n s o l e r e c o r d s e t b y S o n y ' s PlayStation 2. N i n t e n d o s u p p l i e s t h e l o c a l m a r k e t w i t h g a m e consoles and software manufactured in its threemajor Japanese m a n u f a c t u r i n g p l a n t s l o c a t e d i n Uji, Okubo and Ogura. N i n t e n d o d i s t r i b u t e s t h e i r p r o d u c t s t h r o u g h i t s s u b s i d i a r y c o m p a n i e s b a s e d i n N o r t h a n d L a t i n America, Western Europe and Australasia, ma kingi t a p r o m i n e n t m a r k e t l e a d e r i n t h e v i d e o g a m e s market abroad. Products are sold through mixed retailers worldwide, as well as Nintendo's flagshipspecialty stores. SWOT AnalysisStrengths N i n t e n d o i s o n e o f t h e m a j o r i n n o v a t o r s i n t h e market of video games and achieved great successt h r o u g h l a u n c h i n g n e w p r o d u c t s l i k e t h e W i i console Nintendo was able to expand its customer base byr e l e a s i n g p r o d u c t s t h a t t a r g e t w o m e n a n d o l d e r customers such as Wii Fit and Big Brain Academy F o r m i d a b l e t e l e v i s i o n a d v e r t i s i n g campaignss u c c e s s f u l l y e n t i c e d m a n y g a m e r s t o c h o o s e N i n t e n d o g a m e c o n s o l e s r a t h e r t h a n t h e i r competitors Weaknesses Although being above competition in delivering g a m i n g e x p e r i e n c e , N i n t e n d o f a i l s t o m e e t u p t o date technical standards like graphics. N i n t e n d o g u a r d s a g a i n s t m a r k e t s a t u r a t i o n andimplemented a rule on five games that a licensee m a y p r o d u c e f o r a N i n t e n d o s y s t e m . T h i s prevented Konami from collaborating with Nintendo for the development of new g a m e software due to its strict limitation control. In the f i n a l a n a l y s i s , t h i s b e c o m e s a l i m i t i n g f a c t o r f o r Nintendo to expand much wider marketability of its game consoles. Opportunities T h e v i d e o g a m e i n d u s t r y c o n t i n u e d t o s h o w growth, driven by expansion of software sales, agrowing base for the new generation of c o n s o l e h a r d w a r e a s w e l l a s f a v o r a b l e s a l e s o f h a n d h e l d hardware. Nintendo announced the release of a new console f o r 2 0 1 1 w i t h n e w f e a t u r e s t h a t m i g h t m a k e a n even bigger customer base accessible. Threats C o m p e t i n g c o m p a n i e s l i k e M i c r o s o f t a n d S o n y announced to release new consoles that will have as i m i l a r g a m e p l a y a s N i n t e n d o s W i i c o m b i n e d with better graphics. Strong censorship and restrictions implemented o n n e w s o f t w a r e g a m e s d e v e l o p e d f o r N i n t e n d o consoles frustrate other game developers who may otherwise have considered collaborating. P i r a c y i s e x p e c t e d t o r e m a i n a n i s s u e f o r t h e games industry and manufacturers are expected to c o n t i n u e d e v e l o p i n g a n d i m p l e m e n t i n g

n e w strategies to overcome this problem. T h e g r o w t h i n o n l i n e a n d m o b i l e g a m i n g i s expected to remain a potential threat to value sales growth in the video games sector Financial Overview N i n t e n d o h a s b e e n p e r f o r m i n g w e l l i n t h e p a s t years. The growth boost t h r o u g h t h e W i i c o n s o l e has been slowing do wn, and a negative growth is expected for 2010.A c l o s e r l o o k a t t h e b a l a n c e s h e e t s h o w s t h a t Nintendo is, and has been 100% equity financed.F u r t h e r i n f o r m a t i o n c a n b e f o u n d i n t h e f u l l company report. a ) H i s t o r i c a l R e s u l t s a n d t r e n d s As observed in the graph below and as explicitlyd e t a i l e d i n o u r 3 - s t a g e g r o w t h m o d e l a n a l y s i s , N i n t e n d o s p e r f o r m a n c e s f o l l o w a r e c u r r e n t pattern. Basing our gro wth rate estimation on thisf i r s t f a c t o r l e a d s u s t o a s s u m e t h e f o l l o w i n g forecasts: Based on their product launch patterns, N i nte ndo s gro wt h r a t e s h o u l d i n c r e a s e consequently within the next 3 years. In 2013, Nintendos growth rate should reach i t s p e a k a n d s t a r t d e c r e a s i n g b e f o r e experiencing the final stage of stabilization. a) Worldwide Economic Situation.Over the years, Nintendos sales growth trend has b e e n h i g h l y correlated to the world GDP growth r a t e . N i n t e n d o s p e r f o r m a n c e s h a v e t h e r e f o r e always perfectly matched the worlds economy.Hence, we have decided t o c o m p u t e N i n t e n d o s future gro wth rate by taking into consideration theexpert forecasts from IMF (International Monetary F u n d ) , a n d a d d i t i o n a l s o u r c e s o n t h e w o r l d e c o n o m y f o r t h e n e x t 3 y e a r s . B a s e d o n t h e s e expert analyses regarding the performances of theworld wide economy, we have attempted to extract a general trend in order to be accurate and realist inour calculation. For the next 3 years, our forecastsfor the world GDP real gro wth rate will be around3.10% for 2011, 4.00% f or 2012 and lastly 4.50% for the year 2013. Figure 9 highlights the impressive correlation and puts into perspective the performances of Nintendoin relation with the global economy for theupcoming years: Figure 9 c) Success of Nintendos launch of new consoleAccording to various sources and concordent with Nintendos product innovation cycle, the video -g a m e f i r m w o u l d r e l e a s e a n u p d a t e o f t h e successful Wii beginning of 2011. The Wii 2 w o u l d o f f e r b o t h b e t t e r g r a p h i c s b y p r o v i d i n g a n HD resolution and mo re sensitivity in its captors.The release would is predicted to bump Nintendos performance as it would respond to the critisim andc o m p l a i n t s o f m a n y o f i t s u s e r s . M o r e o v e r , t h e launch of a new Nintendo DS would also be in the pipeline for 2011.T h e j u x t a p o s i t i o n o f b o t h e v e n t s w o u l d have ad i r e c t p o s i t i v e i m p a c t o n t h e f i r m s r e v e n u e . However, because t h o s e t w o e v e n t s r e p r e s e n t s simple update of existing products, their impact on Nintendos growth rate would not be as significant as the one experienced in 2005 (163.35%). d) Impact of competitors on Nintendos historicaland projected financial performancesT h e r e l e a s e o f competing products have alwaysso mewhat affected Nintendos trend to a c e r t a i n extent. In the last 4 years (since the release of the W i i ) , t h e i m p a c t o f N i n t e n d o s c o m p e t i t o r s products on its performances has been rather low, a s N i n t e n d o h a s s u c c e e d e d i n p o s i t i o n i n g i t s product on a different level of entertainment andt h e r e f o r e c o n q u e r i n g a q u i t e d i f f e r e n t t a r g e t market. However, prior to the Wii success, N i n t e n d o s m a i n c o m p e t i t o r , S o n y , w a s dominating the market with the PlayStation 2 , w h i c h i m p a c t e d N i n t e n d o s f i n a n c e s i n t h e y e a r s 2003, 2004. Therefore based on past experiences,w e c a n a s s u m e t h a t t h e f u t u r e l a u n c h o f M i c r o s o f t s P r o j e c t N a t a l w i l l h a v e a n e g a t i v e impact on Nintendos financial statements. Figure 9 emphasizes both the historical trends and the forecast for the next three years in terms of new product releases. e ) G r o w t h r a t e f i g u r e s f r o m 2 0 1 1 t o 2 0 1 3 Based on the four above factors and on their highcorrelation with Nintendos financial performancesw e h a v e c o m p u t e d t h e f o r e c a s t e d r a t e o f g r o w t h for the three upcoming years. While the first figureof 2011 resembles results of the raw calculation of the growth rate formula (Expected Growth Rate for 2 0 1 1 = E q u i t y R e i n v e s t m e n t

Rate 2010 * Returno n E q u i t y 2 0 1 0 ) 8 . 1 4 % v s . 6 . 2 9 % , w e o b s e r v e some disparities in the computations for the tworemaining years. These latter d i f f e r e n c e s c a n b e explained through the constant aspect of the Returno n E q u i t y f i g u r e s (around 18.5% for the threeyears). Therefore, we have decided to base o u r c o m p u t a t i o n s o n t h e f a c t o r s e x p l a i n e d a b o v e , a s they tend to be in precise concord with the marketreality. The results of our estimation give u s a rateof gro wth of 8.14% for 2011 , around 20.00% for2012 , and close to 30% for the year 2013 . T h e 3 mentioned rates fall under a fair evaluation of the f o u r f a c t o r s e v o l u t i o n o v e r t h e n e x t 3 y e a r s a n d a r e o n t o p o f t h a t i n p e r f e c t a c c o r d a n c e w i t h t h e projected growth pattern of the firm Recommendation and Summary In hindsight, Nintendo has endured a tough time in t h e p a s t t w o y e a r s o f w o r l d w i d e meltdown. As ac o n s u m e r d i s c r e t i o n a r y c o m p a n y r u n n i n g operating globally, Nintendo has been affected byreduced consumer confidence, unemployment and wage -cuts. Still, Nintendo has maintained a strong o v e r a l l p o s i t i o n . A s the world continues to shows i g n a l s o f e c o n o m i c r e c o v e r y , o p t i m i s m a n d a stabilizing equity markets, prospects are nothing but glorious for Nintendo.D e s p i t e s a l e s o f Nintendos blockbuster consoleWii are clearly slowing down and growth ratee v e n h a s t u r n e d n e g a t i v e s i n c e M a r c h 2 0 0 9 , t h e o u t l o o k f o r N i n t e n d o i s g e n e r a l l y p o s i t i v e . I n relative to its rivals, Nintendo maintains a valuablec o m p e t i t i v e e d g e b y d o m i n a t i n g t h e r a p i d l y g r o w i n g v i d e o g a m e market for aged and female p l a y e r s . I n a d d i t i o n , N i n t e n d o h a s s e v e r a l promising product innovations coming up such as the 3D handheld console 3DS and furthermore int h e p i p e l i n e . B e s i d e s t h a t , e x i s t i n g p r o d u c t s a r e performing on a surprisingly stable level.Looking forward, the results of our estimation giveu s a r a t e o f g r o w t h o f 8 . 1 4 % f o r 2 0 1 1 , a r o u n d 2 0 . 0 0 % f o r 2 0 1 2 , a n d c l o s e t o 3 0 % f o r t h e y e a r 2013.