Ok earnings are out and Nintendo again is having trouble with the exchange rates/strong yen. Is anyone else baffled by how such a conservative company (why is Wii production not at 3.5+ million/mo?) doesn't have better currency hedging? And don't tell me that this was a fluke as I remember they got slammed even worse due to currency issues just another quarter ago--either the last or the one before it.
I should have hedged the yen myself before I bought the stock. Not sure how I would have done it. Maybe Forex. On the other hand, Nintendo said that it had hedged the dollar in the annual report two years back.
The Yen was priced around 120 to the dollar and now it's about 90 less than half a year later. A 30% change that fast is unprecedented and very hard to predict. One thing no one talks about is how the billions they have in the bank is growing purchasing power which is a good thing. However, earnings growth is what drives a companies stock...
Or maybe the Japanese will stop being so xenophobic? No, that won't happen, but if they outsource more what will their aging population do?
This stock is holding up very well given the state of the world economy. If you look back at the high a year (for 7974.oc priced in yen) ago and calculate the dollar adjusted price (using the current exchange rate) you can get a rough idea on how much the earnings-in-yen, NTDOY priced in dollars balance has buffered the drop in share price.
No one here has really talked about the OP's question, which was about currency hedging. It's nice to babble about randomness, but this is a pretty important issue for those who invest in Japanese exporters.
I would guess one reason the company has run into trouble with the yen is that the yen has been ridiculously and unpredictably strong. Interest rates on yen-denominated assets are terrible, but people are flocking to it because it looks safer than the dollar or the euro. You can't run your company on the assumption that the world is going to face a massive crisis and you need to protect yourself against people craving the lowest-yielding currency in the world. Furthermore, currency trading is a zero-sum game (i.e. no free lunch) in which Nintendo has no expertise. A few years ago, how much would they have had to spend in order to hedge against a rise in the Yen to 90/dollar? What sort of loss would this hedge have produced if the status quo continued? Who at Nintendo is in a position to assess this risk/reward tradeoff? Maybe you want to put a non-directional hedge on the yen centered at 105 or 110/dollar, but that's an expensive hedge that will be a drag on profits no matter what.
If the yen continues to beat out the Euro and the dollar I expect Japanese manufacturers will just have to source more of their materials from and locate more of their factories in countries other than Japan. Toyota has been doing so for a while. The real advantages of Japanese companies are access to cheap capital and a highly educated workforce that can generate good ideas, not manufacturing. A rise in the yen hurts short term profits, but also shows foreign investors that yen-denominated assets can be a source of strength, and makes it easier for the company to acquire assets abroad and build their products cheaply in other countries.
Finally, the real limitation on Nintendo's profitability is not how many yen they can convert an American Wii sale into - it's Microsoft and Sony's continued insistence on losing money selling more technologically advanced products at unprofitable prices. If the consoles were sold at an appropriate profit margin you'd see even more parents opting for the Wii for their kids over a more expensive XBox or PS3. Nintendo has neutralized this problem for now by making a system that's more fun, but in the long run it's no fun to compete with deep-pocketed companies that are willing to lose money to gain market share.
All you did was prove my point:
"Sales rose 17 percent to 413.5 billion while net profit fell 28 percent to 37.56 billion yen as the yen's appreciation pared the value of Nintendo's foreign currency-denominated assets."
And the article also states Wii sales are expected to increase 4%. 4%!!
So all you did was numerical prove my quote--Why is a conservative company like Nintendo having trouble hedging their currency AND not increasing production on the Wii?