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Wii U brightens Nintendo's financial picture

Wii U sales are up as of March 31 compared to the prior year, as were software sales, Nintendo reported in its latest earnings release -- but the company is still in some trouble.

Nintendo's Wii U helped the game company post a profit in the last fiscal year. Nintendo

Nintendo has staged a turnaround, overcoming its losses and generating a profit on the improved performance of its Wii U division.

Nintendo's Wii U sales hit 3.4 million units in the fiscal year ended March 31, up from the 2.7 million units the company sold in the prior fiscal year, the game firm announced on Thursday. Wii U software sales hit 24 million units, up from nearly 19 million in the previous year.

The Wii U launched in 2012 for $300 as a family console that includes a full touchscreen on its controller. It was also Nintendo's first console with HD support and resolutions up to 1080p.

The better-than-expected performance is the latest bit of good news for Nintendo. In its earnings release, Nintendo said that its Wii U's success was built atop last year's launches of Mario Kart 8 and Super Smash Bros. for Wii U. The company said that its first-party titles helped bolster its software business and drove more people to buy Wii U hardware so they could play its titles. Historically, Nintendo has used its first-party games to drive hardware sales, and when the company launches new entrants into major franchises, like Mario Kart, hardware sales typically rise. The same held true for last year.

The Wii U's success, however, stood in direct contrast to the other products Nintendo sold last year. The company's 3DS portable hardware saw sales slip from 12.2 million units to 8.7 million units in the most recent fiscal year. Software sales were also down to 63 million units in that division. Nintendo's once-dominant Wii is still holding on strong, though sales have slumped to 460,000 units.

Those units were enough to outpace the gains Nintendo saw in its Wii U division, pushing the company's revenue down to 549.8 billion yen ($4.6 billion), a drop of 3.8 percent compared to the prior year. That said, Nintendo was able to generate a profit of 41.8 billion yen, besting the 23.2 billion yen loss it notched in the prior year.

While the news of its profit is a good one for Nintendo -- it had initially projected a profit of 30 billion yen -- the company's future still appears challenging. The Wii U, while producing better sales, has proven to be far less popular than its top competitors in the console space, namely the Sony PlayStation 4 and Microsoft's Xbox One. Meanwhile, Nintendo's portable business has been on the ropes as gamers continue to move to smartphones and tablets for their gaming fix.

Nintendo acknowledged its issues in March, announcing a new strategy that will include the company developing games for iOS and Android devices. It's possible that some of its much-beloved franchises, including Super Mario or the Legend of Zelda, could eventually come to those products. Nintendo also said that it's working on a new game system called "NX," though the company has been unwilling to share any details on the hardware just yet.

Still, the decision to announce those plans in March, ahead of its earnings, reflects Nintendo's growing desire to allay shareholder fears. In the early 2000s, at the height of the Wii's success, Nintendo was generating billions of dollars in profit. But as customers started to change preference and hard-core gamers increasingly turned to products like the PlayStation and Xbox, Nintendo lost its footing. Indeed, for the last couple of years, Nintendo has been in rough shape with few signs of regaining its past success.

Some of the details in Nintendo's earnings release also seem to further contribute to the idea that not everything is right at the historic game company. Although sales for the Wii U were stronger than expected, Nintendo acknowledged that its better-than-expected performance was due in part to a depreciated yen that caused exchange rates with the US dollar to have a higher discrepancy. That resulted, the company said, in higher income than it "had assumed."

What's more, the outlook for the future doesn't look as bright. Nintendo said on Thursday that it expects sales for the year ending March 2016 will be up 3.7 percent to 570 billion yen, but the company's net income will fall by 16.4 percent to 35 billion yen. That slump will be due in large part to Nintendo's expectation of selling fewer hardware units and less software this fiscal year.

Nintendo did not immediately respond to a request for comment.

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