Nintendo Wii, DS Recalls Could Cost Company Millions

Two unfortunately timed product failures could cost Nintendo millions of dollars. The company said it would voluntarily replace 3.2 million straps attached to the controllers of its new Wii game consoles, and it is recalling about 200,000 AC adapters for its DS and DS Lite handheld game machines.

The Wii strap failures are a global problem. Nintendo made an offer to exchange the straps for stronger ones after consumers reported they were breaking during game play.

Meanwhile, the AC adapter issue is restricted to DS handheld games sold in Japan. Nintendo said the adapters may overheat and cause burns on rare occasions, though no injuries have been reported.

Case by Case

The problematic Wii straps take center stage in the midst of the holiday shopping season, when most video game consoles are sold. U.S. consumers bought 476,000 Wiis in the first two weeks they were available, according to NPD Group estimates. A lower price point has helped bolster interest in the consoles.

The Wii competes with Sony's (NYSE: SNE) PlayStation 3 and Microsoft's (Nasdaq: MSFT) Xbox 360.

Beyond price, Nintendo's unique selling point is its motion-sensitive controller that allows interactive play. Players of Wii Sports, for example, can virtually swing tennis rackets or golf clubs. The Wii strap keeps the controller on the gamer's hand.

The straps that shipped with the Wii have a 0.024-inch diameter. The new straps will have nearly double that with an 0.04-inch diameter, Nintendo said. Exchanging the straps for heavier-duty models could cost the company several million dollars.

Bad Timing

Nintendo can't be pleased with the timing of the strap problems, but the company is putting a positive spin on the problem, reporting that gamers are getting so excited playing with the new system that they are losing their grip on the controller.

"Recalls are bad, but recalls with regard to new products are nothing startling. This is a brand new system with a brand new type of controller. It doesn't surprise me that there are some problems with it," Brian O'Rourke, a senior analyst at In-Stat, told the E-Commerce Times.

As long as Nintendo delivers the new and improved straps, he added, the company can squelch any negative perceptions among consumers. O'Rourke doubts the recalls will have any impact on holiday sales of its video game products.

"The incidents of recalls are higher for new products than with established products. Now, if it was a systemic problem or a problem reading the game discs or with the video display, that would be an issue," O'Rourke said. "But straps are not a big issue."

Eating Into Profits

The recalls may not impact sales, but they will impact profits.

In addition to the cost of replacing the straps, Nintendo predicts the issue will cost it between US$848,600 and $1.7 million to replace the faulty adapters.

Nintendo has not yet revealed how much of the cost the AC adapter supplier, Nagano Japan Radio, will absorb.