Japan's Nintendo Co <7974.OS> posted its first quarterly profit growth in more than a year, helped by the launch of a popular game, but it forecast a second straight year of smaller profits as sales of its Wii console slow.
Nintendo rode strong demand for the Wii and DS handheld game player to three straight years of record profits through March 2009, but momentum slowed last year as Sony <6758.T> and Microsoft cut console prices and beefed up their software offerings.
Besides competition from within the video game industry, Apple's iPhone and other smartphones are starting to pose a threat as they offer increasingly sophisticated game functions and as major software firms develop games for them.
Nintendo, the creator of Super Mario games, expects operating profit to fall 10 percent to 320 billion yen ($3.41 billion) in the financial year to March 2011, reflecting its assumption that Wii sales will fall 12 percent to 18 million units.
The forecast falls short of the consensus of a 349.5 billion yen profit in a poll of 22 analysts by Thomson Reuters I/B/E/S.
The company forecast was below the consensus, but it is conservative and within the market's assumptions, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management. I don't think it will give a negative impression to the market.
Nintendo plans to launch a new portable game machine that allows users to play 3D games without using special glasses by March 2011, raising investor hopes that President Satoru Iwata could recreate the success of the DS and Wii.
Nintendo expects its DS sales in 2010/11, which include sales of the new 3D machine, tentatively named 3DS, to come to 30 million units, up 10.7 percent from a year earlier.
The sales target for DS, 30 million units, is very conservative ... We will have to wait for E3 to see what the 3DS will be like, but DS sales will go higher, Akino said.
Nintendo plans to unveil details of the highly anticipated machine such as software availability at the E3 video game trade show in June.
President Iwata's strategy to expand the gaming population by offering innovative and easy-to-play games helped the DS and the Wii grab the top spots in their respective product segments, dethroning Sony as the king of the game industry.
Iwata started his career as a game developer in high school, where he used a tiny programmable electronic calculator to create video games for use among his friends.
Nintendo's operating profit rose 11 percent from a year earlier to 59.9 billion yen in January-March, helped by the U.S. launch in March of new Pokemon games for the DS.
For the whole of the previous business year, Nintendo posted a 36 percent slide in operating profit to 356.57 billion yen, its first annual profit decline in four years.
Ahead of the results announcement, Nintendo shares closed down 3.3 percent, in line with the benchmark Nikkei average <.N225>. The stock has gained 39.1 percent so far this year versus a 1.4 percent gain in the broader market.
(Additional reporting by Nathan Layne and Nobuhiro Kubo; Reporting by Kiyoshi Takenaka; Editing by Anshuman Daga)