Painful Wii price cut keeps Nintendo in the game

A firm yen also took its toll on profits, and the Japanese company that earns 85 percent of its revenues outside its home country stuck to its forecast for a first annual profit fall in four years.

Nintendo has ridden white-hot demand for the DS and the Wii to record profits in recent years, dethroning Sony Corp, which ruled the global game market for a decade from the mid-1990s.

But a slowdown in sales of the two game machines sent Nintendo shares down 17 percent over the past year, while rival Sony Corp gained 68 percent, although Nintendo's market value is still 20 percent bigger than that of the PlayStation maker.

Nintendo shares were sold severely a while ago as market players had serious doubt about the future of its hardware. But the result today should buttress investor confidence about Nintendo, said Kazutaka Oshima, president of Rakuten Investment Management.

Apparently, its game gear still has steam left in them.

Nintendo, locked in a three-way gaming battle with Sony and Microsoft Corp, maintained its operating profit forecast of 370 billion yen ($4.1 billion) for the year to March.

That would be a third below its 555.26 billion yen profit a year earlier, but more than a consensus for a 361.1 billion yen profit in a poll of 20 analysts by Thomson Reuters I/B/E/S.

POSITIVE OUTLOOK

In October-December, the crucial holiday quarter for game makers, Nintendo sold 11.3 million units of the Wii, up 8 percent on the year, as it released strong game titles such as New Super Mario Bros. Wii and cut the console price by a fifth.

The DS hardware, which was launched more than five years ago, sold 11.7 million units, little changed from 11.9 million a year ago. It now competes with Sony's PlayStation Portable as well as smartphones equipped with a gaming function, such as Apple Inc's iPhone.

They did outperform people's expectations and that is pretty commendable ... It proves they still are very good at what they do, KBC Securities analyst Hiroshi Kamide said.

If we look forward another six to 12 months, we know there are big games on the way. The outlook is actually rather positive than negative.

October-December operating profit was 192.3 billion yen, down from 249.1 billion yen a year earlier.

Profitability came under pressure after the Wii price cut, which followed similar cuts by Sony and Microsoft.

Net profit came in at 123.1 billion yen in the latest quarter, up from a 67.7 billion profit a year earlier, when the company was forced to book hefty foreign exchange-related losses due to sharp appreciation of the yen against the dollar.

Sales fell 9.3 percent in the latest quarter to 634.1 billion yen.

Shares in Nintendo closed up 2.5 percent at 26,320 yen ahead of the announcement, hitting a six-month high and outperforming the Nikkei average, which rose 1.6 percent.

(Editing by Dean Yates and Andrew Callus)