Wii Shortage Blamed on Dollar...I don't think so.
I made a posting about the value of a Rupee in The Legend of Zelda series on TheHylia.com, the other site I run, when reader garsh mentioned that some people believe that a reason for why the Wiis are in short supply here in the US was because of a weak Dollar. Therefore, Nintendo would rather sell the Wii in Europe where the exchange rate is more favorable. I had known about this opinion as stated by dallasnews.com. While this is a possibility, I am not so sure that it is necessarily the right one.
For those who listen to the podcast, you know that I love economic stuff and so I thought that I would just give you my reasoning as to why I do not think a weak Dollar is doing it. I think the economic reasons make sense, but I think a greater understanding of how Nintendo works would have been better for the guy who was making the comments. And just to get this point out of the way, I am not worried about the state of the Dollar.
So, first off, in case you haven't read the article from dallasnews.com, I will just summarize what they are saying.
The argument itself is a pretty good one. The way it works, is that when a country, like the Unites States, imports more than it exports, the currency becomes "weaker". What that means is that say we are importing more from Japan than we export to them. What happens then, is that our currency, as compared to the Yen, becomes weaker. When a currency weakens, it is not as favorable to denominate goods in the weaker currency since the exchange rates are tipped in favor of the Yen. What that means is that now it takes fewer Yen to equal a Dollar and so Nintendo loses money in the exchange of currencies.
Here is a graph of the Dollar compared to the Yen (more details):
As you can see, the Dollar has gone down and the thinking is that in order to make more money, Nintendo has shifted their stock of Wiis to areas like Europe where the currency is stronger.
This is essentially what the article says.
Sure, denominating consoles in Dollars and exporting to the USA is something that becomes less favorable to Nintendo, but here is my reasoning.
1. All console makers sell their consoles at a loss except Nintendo, who, depending on which report you believe, is either making money on console sales or losing about $12 per console. Because of this, there really shouldn't be any reason why Nintendo needs to worry about the profits any more than Sony especially because they have a lot of hit first party titles that Sony doesn't have and therefore can rely on the games if the problem was really the Dollar.
2. The DS is still being made and sold in greater numbers than the Wii and I am pretty sure both are being imported. The shortage we see with eh Wii simply isn't happening with the DS.
3. Lastly, it is important to realize that a weak Dollar, when compared to the Yen is a two-way street. The Dollar has dropped about 12% since the Wii launch. Whether you think that is really enough to slow sales in one of their hottest markets, you tell me. But here is the thing. A weak Dollar isn't really as bad as most might say it is. As I said, it is a two-way street. What I mean is that while it may be unfavorable for companies that are overseas like Nintendo to export to us, it does become favorable for them to import from us. American companies that make the components for the Wii like IBM making the "Broadway" CPU and AMD making the "Hollywood" GPU, look a lot more attractive to Nintendo because they are American components and so can be bought on the cheap. My point being that whatever Nintendo loses from Dollar prices, (If they even lose anything at at), the difference could look the same on the balance sheet if you think about the lower prices for American-made components.
The most important point really is the last one. Thanks to super-awesome capitalism, currencies are a two-way street. A strong currency is favorable for imports and a weak currency is favorable for exports. The US is in a good position to export goods like Wii components to Nintendo. A weak currency on our part means that Nintendo can save on the components that are American made and thus saves money.
Look, I am not saying that the possibility of a weak Dollar being the problem is impossible, but I think there are these considerations to keep in mind when trying to pin something like a Wii shortage.
I realize that some of this economy stuff is a little weird and so I'd be happy to explain anything if you leave questions in the comments.