Sony Corp unveiled a new handheld gaming device, the first to feature 3G wireless connectivity, as it battles with Nintendo's best-selling DS and tries to fend off competition from smartphones including Apple Inc's iPhone.
The announcement came the same day as Nintendo, which is readying the launch of a 3D version of its DS next month, reported a 46 percent slide in quarterly profit below analysts' estimates. It also trimmed its Wii and DS sales forecasts for the year to March.
With Apple's iPhone in particular eating into the market for portable gaming devices, both Sony and Nintendo need new products to boost sales and profit.
Sony said its new device, codenamed NGP for Next Generation Portable, will not go on sale until around the year-end but and declined to say how much the device will retail for. Nintendo's 3DS will sell for 25,000 yen.
The key will be pricing of the device, said Nobuo Kurahashi, an analyst at Mizuho Investors Securities. If the company prices it cheaper than Nintendo's 3DS, it would be positive.
Sony's latest release will stoke market speculation the Japanese consumer electronics giant is readying a gaming smartphone.
Sony's NGP will feature a 5-inch OLED touch screen, larger than the 3.5 inches used for standard smartphones. It also has a back touch pad and a motion sensor.
By the end of the year, Sony plans to make PlayStation games available on other portable devices running on Google's Android operating system, through an application called PlayStation Suite.
Hurt by falling sales of its aging DS ahead of the launch of the 3D-capable model, Nintendo's October-December operating profit was 104.6 billion yen ($1.3 billion), below an analysts' consensus of 118 billion yen.
Underscoring the tough competition, Nintendo cut its sales forecast for the Wii console to 16 million units from 17.5 million units for the year to March. It also lowered its DS sales forecast by 1 million units to 22.5 million, but kept its profit outlook unchanged.
Nintendo's DS sold nearly 136 million units up to last September. Sony's PSP has sold some 61 million.
Shinichiro Matsushita, an equity analyst at Daiwa Securities, said Nintendo succeeded in widening the attraction of computer games to older people and women. He said Sony's use of thin OLED screens might appeal more to the traditional core gamers.
I wonder if Sony wants to attract the same user categories with the new product, said Matsushita.
Investors will now focus on a planned Sony Ericsson event in Barcelona on February 13, with growing expectations a PlayStation phone could be unveiled.
Next week, Sony is expected to post a fall in profits for October-December, hit by its struggling TV business.
(Additional reporting by Ayai Tomisawa; Editing by Anshuman Daga and Edwina Gibbs)