Capcom Third Quarter Report: Fiscal Year Ending March 31, 2008

Key insights

6 takeaways

01
Capcom’s home video game segment grew by 23.3% in net sales, driven by the success of titles like Resident Evil 4 Wii edition and Monster Hunter Freedom 2.See it on page 6
02
Consolidated net sales rose 4.8% to 51,655 million yen, though operating income fell 8.2% to 6,101 million yen due to poor performance in other segments.See it on page 3
03
The arcade operations segment experienced a 62.2% drop in operating income, with sales falling to 86% of the previous year's levels due to increased competition and shifting consumer preferences.See it on page 9
04
Management revised its full-year earnings forecast upward to 81,600 million yen in net sales and 11,500 million yen in operating income, relying on the Q4 releases of Devil May Cry 4 and Monster Hunter Freedom 2 G.See it on page 12
05
To address arcade losses, the company is shifting strategy to prioritize margin improvement over expansion, including a reduction in new arcade investments.See it on page 9
06
The contents expansion segment, covering mobile and pachinko/pachislo, remained stable, with mobile operations achieving profitability in North America by December 2007.See it on page 11

Summary

The Capcom third-quarter report for the fiscal year ending March 31, 2008, details a period of mixed financial results characterized by strong growth in home video game software offset by significant underperformance in arcade operations. While consolidated net sales rose by 4.8% to 51,655 million yen compared to the same period in the previous year, operating income declined by 8.2% to 6,101 million yen. This divergence highlights the company’s reliance on its home console segment, which saw a 23.3% increase in net sales, to sustain overall performance despite broader market challenges.

The home video game segment emerged as the primary driver of growth, bolstered by a successful multi-platform strategy and the popularity of titles such as Resident Evil 4 Wii edition and Monster Hunter Freedom 2. Conversely, the arcade operations segment faced a difficult environment, with existing arcade sales falling to 86% of the previous year's levels. This decline was attributed to heightened competition and shifting consumer preferences toward home gaming, leading to a 62.2% drop in operating income for the arcade division. The contents expansion segment, which includes mobile and pachinko/pachislo businesses, remained a stable contributor, with mobile operations achieving profitability in North America by December 2007.

Looking toward the end of the fiscal year, management revised its full-year earnings forecast upward, projecting net sales of 81,600 million yen and operating income of 11,500 million yen. This optimism is predicated on the anticipated performance of major fourth-quarter releases, specifically Devil May Cry 4 and Monster Hunter Freedom 2 G. To mitigate ongoing losses in the arcade sector, the company plans to prioritize margin improvement over aggressive expansion, including a temporary reduction in new arcade investments and a strategic review of operational costs.