It's pretty common practice in the gaming industry to sell hardware for less than what it costs to produce, with companies making up the difference with the sale of software... basically, Nintendo, Sony, and Microsoft get all their cash from the games, not selling the systems themselves.  It's rather like how movie theaters don't make money screening movies, but in selling snacks.

 

That can be a problem, however if a system has a poor lineup of games, especially with launch- much like what happened to the Nintendo 3DS.

 

The Nintendo 3DS has sold over 15 million units worldwide since it's launch on March 11, 2011, overshadowing the impressive sales figures of the Wii, who had sold 13.17 million units around the 11 month mark.  However, Nintendo is losing money hand over fist- so far Nintendo's reported a loss of 623 million dollars in the past 9 months of sales.  In it's first projections of it's fiscal year (which ends March 2012), Nintendo had predicted it would lose 580 million dollars over the 3DS... but that number's been revised to reveal a whooping 838 million dollars in projected losses.

 

Nintendo blames these heavy losses to altered sales forecasts and current currency exchange rates.  The price-cut the 3DS had to endure to boost sales likely isn't helping either.

 

While I'm impressed that the Nintendo 3DS is seeing such impressive sales figures in terms of numbers sold, the amount Nintendo is losing over the machine is... predictable.  Hopefully, for the Big N's sake, the Wii U won't suffer similar a similar fate.

 

Nintendo Forecasts More Severe Losses   (IGN article)