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Analyst Says Nintendo's Wii U Will Sell Out Through March, but May Falter Afterward

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Nintendo's new console is sure to be a hit, but a lack of developer appeal might hurt its profitability.

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MINYANVILLE ORIGINAL On November 18, Nintendo (PINK:NTDOY) became the first of three major video game console manufacturers to launch its next generation system, the Wii U. Nintendo is no doubt enjoying the benefits of the early release as the console quickly sold out in America, and analysts such as WedBush Securities' Michael Pachter, believe that it will continue to do so until around March 2013. However, after the Wii U's launch hype ends, Pachter believes that Nintendo will not be able to maintain relevance in the market.

What may become a major problem for the Wii U is that the technical hardware for its system basically catches it up to its rivals' current consoles, Microsoft's Xbox 360 (NASDAQ:MSFT) and Sony's PS3 (NYSE:SNE), allowing it to play ports of the industry's more popular titles. At first glance, this might not seem like a problem, as Nintendo's previous Wii console faced a similar challenge and still managed to set records in sales, but analysts predict that fewer game developers will plan on supporting the system partly because of its technical deficiencies.

Although the launch lineup for Wii U games may be fairly strong, game studios will most likely abandon the system as development kits for Sony's PS4 and Microsoft's next Xbox console (which I have affectionately dubbed "The Nextbox") are released. The newer consoles will allow the developers to make games with more powerful physics and graphics engines, keeping them on the cutting edge of the industry. In an article from Wii Daily, Michael Pachter is quoted supporting this idea, adding that Nintendo's weak online community is another factor that would dissuade developers. He says, "Nobody in their right mind would buy a Wii U and say 'I'm going to play Call of Duty. That's like saying 'I gave up Facebook (NASDAQ:FB), and its Google+ (NASDAQ:GOOG) now."

Again, considering that the Wii also had poor developer support throughout most of its run and Nintendo's consoles have always maintained selling power through the company's own franchise titles, the fact that the Wii won't find favor with developers could be spun into a small issue. In the past generation of consoles, many hardcore gamers were fond of owning a Wii just to play Nintendo's games, but spent most of their time on Xbox 360 and PS3, like my friend Adriel, who refers to his Wii as a "foot-rest." However, unlike the Wii, Nintendo is selling the Wii U at a loss, meaning that the money it will receive from game sales will be crucial to helping the company re-coup the cost of the system, and eventually garner profits.

In this light, the lack of developer support could become a serious problem, as the company only releases one or two major titles from its own franchises per year, which isn't enough to support a console. The situation Nintendo faces now is similar to that of Sony with the launch of the PS3, wherein a lack of developer support and selling its console at a loss put it way behind in a market that it was previously dominating. Sony has only recently managed to stand on equal footing with its peers, but it took a much-needed rebranding effort and some hilarious ads to get there, even though its console tech was superior.

Still, Nintendo seems confident that its console will be a resounding success. The company has announced that it hopes to sell 5.5 million units before March, a number that Pachter more or less agrees with. However, if developer support doesn't follow, those numbers might not mean much.
No positions in stocks mentioned.
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