Nintendo (NTDOY) has taken a bold step in ditching domestic production of Wii U, one of its mainstay video game units, months before launching its new hybrid console, the Nintendo Switch.
In a quiet announcement by the Japanese game maker, buried under layers of pages in its website rather than on an official press release, Nintendo only went as far as to say it plans to end its domestic production of its 32-gigabyte Wii U premium set and the Wii U Splatoon Set "sometime soon".
The move is unconventional for Nintendo, which has in the past kept existing products in its portfolio for a few years after introducing a new face before phasing them out.
To be sure, the game console, a follow-up to the Wii and released in 2012, has continued to suffer severe sales volume declines. Last fiscal year, sales volume dropped 4%, including a 17% decline in the Americas, where it generates nearly 45% of its sales. The momentum for the console slipped considerably this year, with its volume down 53% both in the first and second quarters.
That said, the decision comes across as bold - or even hasty - if you consider the level of contribution the product has made overall.
In the year ended March 2013, when the game was first introduced, the Wii U accounted for 15% of overall hardware sales volume, including those for the 3DS and the Wii. Since then, it has gone from strength to strength, to 17%, then 27%. In the most recent full year, the product accounted for 32% of the whole hardware sales volume.
While it's difficult to accurately quantify what contribution the Wii U has made in terms of value, its significance is hard to ignore given that total hardware sales represented 53% of overall sales last fiscal year.
It does not take much imagination to understand that the rival to Sony (SNE) and Microsoft (MSFT) has shifted its focus and resources to its new console, the Nintendo Switch, scheduled for release in March.
Not much has been revealed about the new device, only that it has an appearance of a tablet and can be played either as a mobile device or be attached onto a larger screen.
Upon releasing a teaser video of the new product on October 20, Nintendo confirmed it was still under development.
So far, it seems Nintendo has far to go to convince investors that the Switch will be enough to replace and surpass the Wii U. Shares plunged 6.5% the day after it released the teaser video.
Nintendo shares have advanced 18% in the last 12 months.