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Nintendo's Wii shortage by design?

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Woman boxing on Nintendo Wii Nintendo will not make enough of its Wii game consoles to meet holiday demand. That may help sales of the Microsoft (NYSE: MSFT) Xbox 360 and Sony (NYSE: SNE) PS3.

The Wall Street Journal argues that because Nintendo started as a small family business and has had its share of ups and downs, it is inclined to take very little risk with inventory. That can cause it to miss a big up-tick in demand. The paper writes, "Because Nintendo puts a great deal of focus on cash flow, it tries to keep its inventory as low as possible. Such a strategy is rare among Japanese companies, which have tended to focus on revenue growth and market share."

Nintendo says it was just caught short and did not foresee the big demand for the Wii.

Some experts and observers, however, think that the Nintendo Wii shortage may be by design. Having customers looking all over town for a hot product may build a sense that it is a "must have" item.

The idea that the shortage is by design is probably right. Wall Street would have to assume that Nintendo was very poorly run if it was actually caught so short on the availability of its most important product. The Wii outsells PS3 and Xbox 360 by such a large margin that giving up a couple of share points may not hurt, if the company has a plan for next year.

In 2008, Nintendo plans a number of new upgrades to the Wii, and several games for the platform will come to market. Having customers waiting for the Wii may not be a bad idea.

Douglas A. McIntyre is an editor at 247wallst.com.

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Last updated: November 12, 2009: 02:43 PM

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