Nintendo Co Ltd reported a 52 percent slide in quarterly profit on Thursday and slashed its full-year earnings forecast, as its Wii console loses its place as the videogame platform to beat.
Demand for Nintendo's family-friendly games has cooled as rivals Sony Corp and Microsoft Corp bolster their catalog of games that appeal to die-hard players.
Nintendo's portable game machine, the DS, also faces increasing competition from Apple Inc's iPhone, which has become a popular platform for handheld games. And like other Japanese exporters, Nintendo has been hit by the stronger yen, which eats into the value of overseas profits.
The group slashed its annual sales forecast for the Wii by nearly a quarter and in an attempt to reignite demand said it would roll out a large-screen version of the DS.
But that falls short of being a real product advance, said Hiroshi Kamide, an analyst at KBC Securities in Tokyo.
A lot of what they're doing seems to be old hat, and therefore what we need to hear is more information about their ideas going forward, he said.
There is still life in the current platforms with the content they can generate themselves, but there is a need for the company to demonstrate that there are new products.
Nintendo's operating profit fell to 64 billion yen ($709 million) in July-September from 133 billion a year earlier, missing an average forecast of 90 billion in a poll of four analysts by Thomson Reuters I/B/E/S.
Reuters calculated the quarterly figure by subtracting Nintendo's first-quarter results from the first-half figures released on Thursday.
Nintendo cut its operating profit forecast for the year to March 2010 by a quarter to 370 billion yen, ending a three-year run during which it booked a record profit.
Analysts were expecting a full-year profit of 442.8 billion yen, according to Thomson Reuters I/B/E/S.
(For a graphic of Nintendo's quarterly results, click on http://graphics.thomsonreuters.com/109/JP_NTND1009.gif)
Nintendo President Satoru Iwata told a news conference a lack of new, must-have titles had hurt sales of the Wii in the April-September period.
We weren't able to deliver the next thing, but now, at last, we have, he said, referring to the Wii Sports Resort that went on sale a few months ago.
In September, Sony's PlayStation 3 usurped the Wii to become the top-selling U.S. videogame console for the first time since its release, according to research group NPD.
Wii had dominated the global gaming industry for the past three years, as its motion-sensitive controller and cartoonish sports games wooed casual gamers, who normally avoid the fast-paced and intricate titles that appeal to die-hard fans.
But analysts said such demand may be waning.
Nintendo would need to devise and establish a business strategy capable of driving structural change within the industry in order for us to turn bullish on the shares, Mia Nagasaka, an analyst at Barclays Capital, said in a research note this month.
Sony's PlayStation 3 is expected to get another boost in December when Square Enix Holdings Co launches the latest installment of its blockbuster Final Fantasy series of role-playing games.
Nintendo last month announced a 20 percent cut in the Wii's price, responding to similar cuts by Sony and Microsoft.
Also on Thursday, videogame maker Capcom Co Ltd reported a 58 percent rise in first-half net profit, buoyed by the popularity of its latest Monster Hunter and Resident Evil games.
Shares of Nintendo finished down 1.1 percent ahead of the results. The stock has declined about 28 percent so far this year, compared with a 14 percent rise in the Nikkei 225 share average.
(Editing by Chris Gallagher and David Holmes)