Has Nintendo Peaked?

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Nintendo isn't the only company facing this trend, of course. Many analysts predict that gaming machine sales will fall this year, with market researcher iSuppli's Pamela Tufegdzic expecting overall console sales to slip 2.5%, to 53.9 million units, this year. She sees further decline in 2010 as the market for the current generation of consoles approaches the saturation point.

Price Pressures

As the market slows, Nintendo's big advantages are disappearing. The company's strategy was to lure people who don't normally play video games by offering a motion-sensing wireless controller, a lineup of so-called casual games and low prices for both the console and game software. In recent months, though, Microsoft has discounted its basic version of the Xbox 360, selling it for $199 in Japan and undercutting the Wii's $250 price tag. And reports abound that Sony will unveil a motion-sensing controller at E3, a major industry conference in Los Angeles in June. Already, Nintendo trails Sony and Microsoft in offering nongaming online services, such as video and music downloads and other goodies. In April, Goldman Sachs (GS) removed Nintendo from its "buy" list and dropped its price target for the stock by 13%, to 30,000 yen.

Not everyone thinks that Nintendo's luck has run out yet. Days before the announcement, Macquarie Securities (MQG.AX) predicted that Nintendo has at least another year of profit gains left, before growth tapers off.

Nintendo's gaming brains aren't sitting idle, either. The company will launch Wii Sports Resort in Japan in June. Nintendo officials are betting that game, which features jet-ski racing and Frisbee, and other anticipated titles can trigger another burst of console sales. Last month, Shigeru Miyamoto, the man behind many of Nintendo's best-selling games, told journalists in Tokyo that his crew is exploring technology that would let the DS and DSi portable consoles act as a guide, map, teaching tool, reference book, and coupon dispenser. That could help Nintendo add to the 101.8 million DS units sold globally since the machine's first version launched in 2004.

Hall is BusinessWeek's technology correspondent in Tokyo.

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