Industry analyst Michael Pachter has blasted Nintendo CEO Satoru Iwata and controlling shareholder Hiroshi Yamauchi for their "poor" running of the company, labelling Iwata as a "pretty poor CEO" who has "done a very poor job" running Nintendo.
Pachter vented his opinion of the exec and his company during the latest episode of Pach-Attack, where he was asked whether he thought Nintendo may have to leave the hardware business.
"Having to? No, never," Pachter said. "Wanting to? Not while their biggest shareholder is Mr. Yamauchi who I believe is around 70, 71 years old, and not while Mr. Iwata is CEO. I think those two guys are deeply rooted in tradition in the past, in what made Nintendo great. And I think that the Nintendo formula for success for the last 35 years has been manufacture a console, sell it at a profit, and support console sales with proprietary software. And then when your console sells well, collect royalties from third-parties for the privilege of putting their software on the console."
However, Pachter believes "that model is broken for Nintendo.
"I think Nintendo is no longer able to compete the way they did in the past and sell their consoles at a big profit," he continues.
"I think that the Wii, when it first launched they were probably making about $100 of profit per unit. I think the DS when it first launched was probably generating about $50 of profit per unit. The 3DS I think is barely making a profit. The Wii U I think is barely making a profit - I'm talking 5 or 10 bucks per unit."
Pachter suggests that Nintendo's hardware profits are "so low that it really doesn't make sense for them to be in the hardware business.
"But I don't think they realise that yet," he adds. "And that's a business decision, so this is a criticism of Mr. Iwata, not of Reggie [Fils-Aime, President & COO, Nintendo of America]. Reggie and the marketing team, they're great, they do what they can. You have to... play with the cards that you are dealt. They're dealt the Wii U, they're going to do the best they can to market it and the best they can to get you excited about the software. So I love the US marketing guys, I think they're phenomenal and I have no problem with any of those guys."
But Pachter doesn't feel the same way about Iwata.
"I think Mr. Iwata's a pretty poor CEO," he continues. "I think he's done a very poor job running the company. I have a neutral rating on Nintendo, but I have to say only because their cash level supports their current share price. It's a bad company that doesn't make money."
Nintendo's future in the hardware business has been questioned following the poor reception to the company's latest console Wii U.
"Your question, will they have to exit the console-making business?," continued Pachter. "The good news is, Nintendo has something around 8 or 9 billion dollars - billion - of cash on their balance sheet. When they lose money, they lose something like a billion dollars. And frankly, I think next year their losses will be smaller. I think if they lose money it'll be $100m, $200m. They can run for 50 more years and keep losing money and they're not going to go out of business. So they aren't forced to do anything."
Pachter also says that he's "surprised that Nintendo investors have watched the stock go from 63,000 Yen down to 8,000 Yen and have stuck with the management team.
"The stock has dropped to cash value so there's no value in investing in it. The only way anybody is going to make money going forward is if Nintendo suddenly starts making money, and they're not going to make money on hardware, not at these prices."
He continued: "If Nintendo's business is trying to make a profit, once they conclude they aren't going to make any money on hardware, of course they should exit the hardware business. And if they were to put their software on multiplatform they would probably sell twice as much software. So I think Nintendo, if they were to follow the SEGA route, would be immensely more profitable, but it's not in their DNA...
"When Yamauchi no longer is a shareholder [and] Iwata is no longer there, maybe, but I'd say they're gonna keep fumbling around and keep trying to make money in hardware. Don't think it's going to work. I'm not particularly optimistic about an investment in Nintendo stock and I am a stock market guy so I've been pretty good about stock market investments.
"If you don't like that answer, Nintendo fans, deal with it."