Nintendo needs some magic to spur growth

Nintendo faces a tough  battle to boost growth as rivals snatch the lead in motion-controlled gaming from the long-time world-beater, just as competition from smart phones and tablets batters the handheld market.

Microsoft and Sony are enticing casual and core gamers with a new generation of console accessories, while Apple's iPad is flying off the shelves.

Nintendo, which means "Leave luck to heaven," is the only  major player in the pre-holiday rush without a significant new  hardware product.

The company is betting on a glasses-free 3D-capable  handheld game player, the 3DS, to be launched in late February in Japan and in March in the United States, but it no longer has the market to itself.

"Users have a growing range of options. It's not just Nintendo any more," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co Ltd, which does not hold shares in Nintendo.

"Within that fragmented market, they are not going to be able to take the kind of share they had before, and margins  will be thinner."

After a three-year run of record earnings to March 2009, Nintendo's margins have deteriorated sharply and the company  has forecast profit will fall to its lowest in five years for  the year to March 2011.

This marks a return to levels before CEO Satoru Iwata, a former game designer, launched the Wii and expanded the gaming  population, toppling Sony from the industry's top spot.

New editions of blockbuster software franchises including Microsoft's Halo:Reach and Sony's Gran Turismo 5 have also  grabbed headlines, while analysts say Nintendo lacks a compelling new software offering, traditionally a source of  healthy profit.

But sales of the Wii console hit a record last December in the United States, the largest market for the sector. Nintendo is hoping its broad appeal can help it report another last-minute spike in sales this year to help meet its reduced forecast of 17.5 million for the financial year.

"They're much more about Christmas and family and buying the presents," said David Gibson, head of equity research at  Macquarie Capital Securities.

"You tend to see numbers bad now and then in November and December a significant improvement."

Nintendo's shares are languishing at about 23,000 yen, down nearly 70% from their 2007 peak, also hit by a  strong yen, but analysts say the shares are unlikely to fall  much further, thanks to expectations over the 3DS.

Microsoft has sold more than 2.5 million of its futuristic  controller-free Kinect gaming systems for its Xbox 360 console this season.

Sony also boasted shipping 4.1 million units of its Wii-like Move accessories for the PlayStation 3 worldwide in the two months since launch.

But it was not clear how many units of either accessory were sold to new console customers, the key to expanding the  user base and thus profitable software sales.

Nintendo, whose Wii is still far ahead in cumulative sales, said it had sold 600,000 Wii consoles in the United States in just a week from November 21 and November 27.

As widespread economic uncertainty persists in the main gaming markets of North America, Europe and Japan, pricing may  play to Nintendo's advantage.

"They've got the pricing lever to pull," said analyst Jay Defibaugh of MF Global. "It's a very price sensitive segment.   There's a big difference between $199 and $99 dollars, for example."

However, the sector is facing a tough time.

US video game sales are down 8 percent this year on top  of an 8% drop in 2009, according to retail research  firm NPD, though the figure excludes growing areas such as  online and mobile games.

Also, Nintendo's glasses-free 3D concept, though much  anticipated by game fans, won't be unique by February, because  Sharp Corp's 3D smart phone will already have been on the market for months.

"Now they've got the entire concept to themselves, but it's not going to be that way for much longer," said Defibaugh.

"So it is incumbent upon them to get that product  out as soon as possible."