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Can Nintendo Get Its Mojo Back?

Four years ago, Nintendo could do no wrong in the video game world. The Wii was beginning a triumphant run at retail, and the handheld DS unit had been flying off of store shelves for the past 24 months.

Nintendo DSi XL
Source: nintendodsi.com
Nintendo DSi XL

Publishers courted the company and competitors quickly learned their initial scoffing over the Wii’s less-than-eye-popping graphics and lack of a traditional controller was wildly off-base.

Today, while Nintendo is still a powerful force in the video game space, it’s far from the dominant player it was. Sales are down precipitously. Executives are leaving. And publisher support is dwindling.

That’s making the competition a bit more bold. Sony and Microsoft both have motion control devices hitting the market this year—and Apple is making a coordinated effort to take a leadership position in the handheld gaming space—which historically has been Nintendo’s biggest competitive advantage.

In an effort to right the ship, Nintendo is gearing up to release the 3DS, a handheld gaming system that offers games (and movies) in stereoscopic 3D without the need for special glasses. Launch details, including date and price, are expected to be unveiled on Sept. 29.

Analysts, though, think the company could have another trick up its sleeve as well.

"It would be naïve to think they don’t have initiatives to boost growth," says Colin Sebastian of Lazard Capital Markets. "We’re in the awkward part of the cycle where they try to keep momentum going when we all know they have something coming. … I expect a console refresh as early as the last part of next year."

"I think a high definition ‘Wii Plus’ – something with a much bigger and better online platform – would be fairly significant. It would put them, from a platform perspective, on a more level playing field."

Investors would welcome any sort of boost. Sales of Wii hardware and software have been slow this year compared to the last few—a trend analysts expect will continue. Michael Pachter of Wedbush says the console suffers from “fatigue”.

Meanwhile, the company is experiencing a moderate management shake-up at its American offices. Cammie Dunaway, EVP of sales and marketing, this week announced plans to leave effective Oct. 1. That comes less than a year after Denise Kaigler, vice president of corporate affairs, departed the company.

Microsoft’s Xbox Kinect, a gesture-recognition controller – a camera that is able to detect subtle movements and sounds from players.
Source: Microsoft
Microsoft’s Xbox Kinect, a gesture-recognition controller – a camera that is able to detect subtle movements and sounds from players.

Meanwhile, publishers, who dramatically expanded their development for Nintendo platforms when the Wii and DS were in their heyday, are now pulling back—discouraged by flagging consumer interest in software for the systems.

One way to boost interest in the platform, of course, is price cuts. The DS saw a moderate reduction at the end of August, and Nintendo bundled another game with the Wii earlier this year. But many feel a $50 cut on the Wii could give that system a big push this holiday—especially with Sony and Microsoft drawing so much attention to motion control devices.

Nintendo isn’t a reactionary company, though. It prefers to act from a position of strength—often tying its price cuts to the release of strong software products, which allows it to double dip, luring both new customers and enticing existing ones.

If it follows that path, there are two potential releases to watch: “Donkey Kong Country Returns” in November or “Legend of Zelda: Skyward Sword” in January.

In the meantime, it will certainly be monitoring how much of an impact the PlayStation Move and Kinect for Xbox 360 have on the market.

If nothing else, the holiday season has historically been good for the company. And while there’s still skepticism, industry observers are hopeful the burgeoning economic recovery could revive the Wii software market in November and December.

“We suspect that the more casual segment is far more seasonal in purchase habits, so there is some hope that Wii software sales will recover in the next several months,” says Pachter.

Questions? Comments? TechCheck@cnbc.com
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