Game Over? Nintendo Profit Plunge Puts More Pressure On 3DS Launch

Not only did Nintendo (NYTDO) announce that its Q3 2010 earnings were down 46 percent from the previous year. Based on weak sales, it has also projected lower sales of Wii consoles and DS portables. Nintendo has the best-selling home and mobile consoles at the moment, but the company knows that the upcoming Nintendo 3DS has to be a massive hit.

Microsoft Kinect is stealing the Wii market
Nintendo's Wii sales for this year aren't bad, even with a projected drop from 17.5 million to 16 million units. But it is a drop, and when compared to the competition, Nintendo's lead is shortening quickly.

For that, they can thank the Microsoft (MSFT) Kinect, which uses motion-based controls without the controller the Wii requires. I was skeptical about the technology, but, as BNET's Erik Sherman noted last fall, the Kinect is a blockbuster: It sold a million units in 10 days and, at last count, moved 8 million devices.

Equally problematic, the Wii has limited uses. While the Wii technology was groundbreaking in 2006, Nintendo hasn't improved the technology in nearly five years nor licensed the technology to companies so others can innovate. (The games themselves have been equally lackluster, getting the average lowest ratings compared to the Microsoft XBox 360 and Sony (SNE) PlayStation 3).

Compare this with the Kinect, which is probably only second to Android for the number and diversity of uses right now:

Microsoft adding motion controls to its PCs and tablets
Pornographers making interactive adult games
3D visuals are the next step for Kinect

And keep in mind, the Kinect has been out for only two months. The Nintendo Wii has had more than four years. Wii sales have been dropping for more than a year and the company did not prepare -- except for creating the Nintendo 3DS.

3D isn't enough to sell the Nintendo 3DS
But there are issues here, too, and that became clear last week when the company announced the details. Nintendo 3DS specs alone aren't enough to sell the portable console. The problems:

No cheap software, especially compared with Apple (APPL) iPhone
No significant game included with the expensive device
No major graphics partners from the console side

Nintendo seems to think that the impressive glasses-less 3D technology will take 3DS sales to the next level, but there is way too much competition within the mobile 3D arena.

First, 3D is already available on other devices, including Apple's. For instance, Spatial View 3D has a free, thin slider that slips onto the iPod or iPhone and allows 3D viewing without glasses, and a virtual store with free and paid 3D content. Expect Apple itself to take 3D into heavy consideration, especially as it preps for the iPad 2, iPhone 5, and the next iPod line for later this year. There is also an army of 3D phones launching this year: Sharp (SRP) just released two 3D phones and LG will be announcing a line of 3D phones in two weeks.

Second, long-time Nintendo rival Sony is making its portable console games compatible with the Android mobile. Gamers now have incentive not only to purchase Google (GOOG) Android devices, but to wait for Sony's powerful NGP device this holiday season. Nintendo does not have any comparable allies.

Nintendo has had an excellent four-year run with the Wii and has been the dominant mobile company for twice as long, but now it really has to reevaluate where it belongs within the home and portable console marketplace.

Photo courtesy of Mykl Roventine // CC 2.0
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