Microsoft's Kinect is making inroads into the game controller market, challenging the Nintendo Wii and Playstation Move.

Microsoft posted a 55 percent increase in revenue in their Entertainment & Devices Division, and the Kinect drove much of that growth. The company said it sold 8 million Kinect sensors since its November launch. Kinect's sales also had a positive effect on related offerings, boosting sales of the Xbox 360 console, the games themselves and Xbox Live subscriptions.

Nintendo, meanwhile, reported that sales of its Wii and DS consoles were 13.7 million in the period from April to December of 2010. In 2009, 17 million Wii consoles sold over the same nine-month span.

Lewis Ward, research manager at IDC, notes that it is likely that Kinect sales had a hand in the Wii's sales decline, at least in the U.S. He was not able to quantify that, however.

Other analysts attribute the decline to the Wii's past success, which has curbed demand for the device. DFC Intelligence Analyst David Cole wasn't surprised by the dip. There is a bit of saturation with the Wii hardware, he said.

Lack of any major leaps in hardware design also made the Kinect seem that much more unique. There hasn't really been a new hardware release in a while, and consumers responded, Cole said.

Cole added that Microsoft is so large that it can fund quite a bit of muscle behind any product. Microsoft put a lot behind the Kinect and I think that I really showed up in sales, said Cole. [But] when you look at the long term potential of it, it's been a very successful product but it's pretty small part of Microsoft's business, he said. It's a question of whether it's going to expand Microsoft's video game offerings.

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