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Operational Efficiency

It's starting to look a lot like Christmas for Nintendo...

Desire in the Design

Clearly, the Nintendo team has done a great job in product design with the Wii, building an iPod-shuffle-like product which does not have the top specs, but which gets the human factors right. Nintendo's focus on UI instead of teraflops has generated demand on the cheap: back at E3 in May, the whole game industry waited in line for six hours just to try it out, and now the Wii has landed on this year's Toys R Us "Hot List". All this attention comes despite the fact that the Wii's internal design is little more than a speeded-up GameCube. The Wii does not have bleeding-edge performance, but people think it will be fun.

"We need to get a Nintendo Wii," explains my son Anthony, "with Zelda." It is as simple as that.

But building an object of desire is only half the story. There is a second benefit to the low-cost smart-design Nintendo approach.

Inside Santa's Workshop

The real reason Nintendo's low-tech strategy is going to win is because of its operational efficiency.

Nintendo has been ramping up manufacturing of the simpler Wii far more quickly than Sony can build the PS3. With a shortage of blue lasers and abysmal yields on exotic Cell chips, Sony has been having trouble meeting their own modest targets on the PS3. Sony America chief Kaz Hirai admits they will be lucky to get a million PS3s into Santa's sleigh this year. In years past, PS2 and Xbox shortages have meant a lot of unhappy children Christmas morning.

But no worries this year. Santa can tell the kids that Nintendo's Wii is the game to get, because Nintendo has a projected 9 to 11 million units in their pipeline. By the time the Thanksgiving shopping weekend rolls around, there will be little evidence of the PS3 in stores; instead Target will be pushing the products that they actually stock. Nintendo's capacity may even turn out to be enough to leapfrog Xbox 360's one-year 5-million-unit head start in a single yuletide month. The simple design of the Wii will deliver a lot of Nintendo smiles on Christmas morning.

Sell the Blades, Sell the Razor

The other thing that will make Santa happy: the Wii is half the price of the PS3, and also cheaper than grandma's Xbox 360. The Wii is cheap to sell because it is cheap to make. Investors will be interested to hear that unlike Microsoft and Sony, Nintendo will actually turn a profit on each unit sold.

I'm dreaming of a Wii Christmas, and I'm still a buyer of NTDOY at $26. (More thoughts on NTDOY from Gannon here.)

Ho ho ho!

Posted by David at October 18, 2006 06:24 PM