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Did Nintendo Doom New Handheld Before Its Release?

Published: Monday, 29 Mar 2010 | 4:46 PM ET

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Nintendo has made a habit—and millions upon millions of dollars—of tweaking its Nintendo DS handheld gaming system and re-releasing it. The upgrades typically goose consumer demand, and until recently, there was no reason to think the just-launched Nintendo DSi XL would be any different.
Source: nintendodsi.com
Nintendo DSi XL

But last week, Nintendo’s [NTDOY Loading... () ] Japanese headquarters threw its American division for a loop, issuing a surprise announcement that the company was working on a 3D handheld gaming system that doesn’t require users to wear special glasses. The Nintendo 3DS, as it’s called, will go on sale sometime between April 1 and the end of March 2011 (Nintendo’s next fiscal year).

Japan’s Nikkei Business Daily added that the 3DS would incorporate haptic, ‘force feedback’ effects, would have better battery life and may include an accelerometer (like the Apple [AAPL Loading... () ] iPhone) that would let players control games by tilting the device.

The announcement, in short, sent the message to U.S. buyers of the $190 Nintendo DSi XL that they are buying technology that will quickly be outdated.

Analysts say the timing of the announcement for the 3DS was definitely poor, but Nintendo’s corporate headquarters was likely trying to get ahead of the rumor mill.

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“Apparently, the Japanese press was all over it and talked with suppliers there and Nintendo just wanted to get out ahead by breaking the news to prevent a leak,” says Billy Pigeon, senior analyst with M2 Research. “Does it clash with the DSi XL? Yes it does.

The XL is old news, however, in Japan – and Nintendo is a very Japan-centric organization. This is just the corporate parent in Japan maybe not acting in the best interest of Nintendo of America.”

Officials at Nintendo of America declined to comment about the 3DS announcement or its potential effect on DSi XL sales.

North American audiences have been interested in the XL since it was introduced in Japan late last year. On Sunday, the system finally went on sale in the U.S., boasting a pair of 4.2-inch screens (nearly double the size of those on the Nintendo DS Lite system) and bundled with three games.

So despite the 3DS announcement, the XL will almost certainly allow Nintendo to further its lead in the handheld category. Life to date, the company has sold over 125 million Nintendo DS devices.

Sony’s [SNE Loading... () ] PSP (PlayStation Portable) sales have historically been a mere fraction of that – even when Sony unveiled an upgraded version last year. The competition, increasingly, comes from Apple.

While mobile games have been a looming threat for years, the iPhone has made significant progress in gaining a foothold in the market. The system is multifunctional, allowing owners to do much more than play games and has a notable price advantage when it comes to software.

Games for the iPhone range from free to $9.99. Packaged Nintendo DS games typically cost between $30 and $40. Less expensive, downloadable games are available on the DSi, but haven’t proven a real threat to the App store.

The XL probably won’t change the footrace between Apple and Nintendo. It is, after all, the same machine with bigger screens for the most part. But it does give Nintendo a rudimentary e-Reader (the company has previously announced plans to release a cartridge with 100 classic books). The larger screen size will also let people see the games, rather than just the device.

Most importantly, though, the XL (and the forthcoming 3DS) could set the stage for a price cut for other DS devices in the months to come without the appearance that they’re being forced to do so because of market or competitive pressures.

“It gives them a reason to bring down prices on the DS from a position of strength,” says Pilgrim.