Nintendo Banking on 3DS to Be Next Big Gaming Market Breakthrough

 |  Includes: NTDOF, NTDOY
by: Investment U

By Ryan Cole

With its new 3DS portable gaming system, Nintendo (OTCPK:NTDOF)(OTCPK:NTDOY) is again changing the face of portable entertainment. But is it enough to keep the company ahead of its many challengers? Let’s take a look.

First, let’s examine the system. There’s no doubt that Nintendo has come up with another fresh take on gaming. Anyone who’s handled the 3DS has been impressed with the technology – noting that the 3D effects are among the best out there today. What’s more, thanks to a slider on the side of the system, eye strain shouldn’t be a problem – users can adjust the effects to their own comfort level, right down to a straight 2D picture.

With no need for glasses, more viewing angles than gamers are used to, and an included 3D camera, it seems like Nintendo has another hit on its hands. Indeed, the 3DS enjoyed Nintendo’s best-ever launch in North America last week.

But the story doesn’t end there …

A Lasting Boom or a Fad?

Last month, the Sony (NYSE:SNE) PSP system outsold the 3DS in Japan – despite being an older, unrefreshed handheld. Nintendo is blaming the setback on a slew of new, popular titles released for the PSP… but something else might be going on here.

After an initial rush to see the new technology, gamers may be finding that 3D gaming just isn’t that compelling – at least in its current form. Even though Nintendo has one of the best viewing angles in the market, it’s still very narrow. In other words, don’t count on being able to show off your 3D toy to a neighbor.

Of course, the story may change again as the company releases more games for its 3D technology… still that isn’t the end of Nintendo’s headaches.

As far as handheld gaming goes, Nintendo has more to worry about than the Sony PSP.

The Apple (NASDAQ:AAPL) iPhone and iPod Touch are making huge strides in the mobile gaming world, along with their Android and smartphone competitors. According to a recent Google (NASDAQ:GOOG)/AdMob survey, mobile gaming numbers increased more than 50 percent in the past year… even as those using Nintendo or PSP systems fell by 13 percent.

It appears that few people want to carry around a dedicated gaming device when their phone does such a good job. And with thousands of titles cheaper than those offered for Nintendo or Sony, mobile devices provide a desirable alternative.

What’s more, if 3D is your bag – the first 3D phone is coming out later this year. The dedicated mobile gaming space may be going the way of the GPS – useful for a few niche power users, but mostly consumed by the ever-more versatile smartphone industry.

That doesn’t mean Nintendo will end up like Garmin (NASDAQ:GRMN). But it does mean that the company will be pressed to squeeze revenues from its existing gaming systems in their own competitive marketplaces.

Pressure From All Sides

The Wii system now feels hopelessly out of date, with far more powerful active gaming options offered by both the Sony PlayStation 3 and Microsoft’s Xbox 360.

What’s more, both the PlayStation and Xbox are more versatile, offering everything from power gaming to digital media streaming to Internet surfing and to cheap home theater solutions.

If Nintendo doesn’t come up with an impressive follow-up to the Wii, the company could be in big trouble. All it does is gaming – and, at the moment, it’s bleeding in every segment of its markets.

Don’t count Nintendo out – the venerable company has faced challenges before, and it’s come out on top time and again. Remember, it still owns many of the top video-game franchises in the world, like the entire Super Mario universe.

That said, unless Nintendo develops another breakthrough platform, it could find itself relegated to the also-rans of history. There always could be a future licensing of its titles – but that’s a very modest vision for this entertainment giant.