Nintendo (NTDOY)

Nintendo has 70% of sales coming from overseas (outside of Japan) and is very vulnerable to changing foreign exchange rates. As oil costs levitate, shipping costs perform the same miracle. These costs eat into NTDOY margins for both manufacturing and distribution. Moreover, the dollar continues its celebrity makeover as toilet paper. This will continue to diminish the value of building in yen and selling in dollars.

Thus, the great irony of globalization (i.e., foreign production is cheaper) begins to mature. The forces in the global oil and currency markets are stronger than those in the growing video game space. And until something changes, these costs will limit upside in NTDOY.

Lastly, the easy money has been made in the current console cycle. Those who remain in shares are playing chicken with the inflection point of the cycle. Some time in the next 12-18 months, Microsoft (MSFT) and Sony should start introducing exciting concepts for their next generation consoles. These glossy press releases will create signs that the current cycle is in the latter stages.

Once that happens, analysts and investors will start to look ahead. And once that happens, doubt will arise as to whether NTDOY will repeat its success in the future. If you are still holding shares at that point, you will be very disappointed to see Nintendo the company still minting money while NTDOY the stock discounts for the great unknown of the next console cycle.

Mobile gaming (gaming on smart phones) just surpassed portable gaming (gaming on a portable system e.g. PSP, DS) in revenues. Smartphones are slowly making portable gaming systems obsolete.

Nintendo has 70% of sales coming from overseas and is very vulnerable to changing foreign exchange rates.

Nintendo's lack of focus on the high definition TV, video, and other media capabilities could benefit its competitors in the long run.

Increased competition from the Playstation and Xbox consoles has contributed to Nintendo's decreasing market share since 1985. The Wii must gain acceptance from the North America market in order to gain market share.