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Nintendo needs some magic to spur growth

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Competition could mean slimmer pickings for this guy

TOKYO (Reuters) - Nintendo faces a tough battle to boost growth as rivals snatch the lead in motion-controlled gaming from the long-time world-beater, just as competition from smartphones and tablets batters
the handheld market.

Microsoft and Sony are enticing casual and core gamers with a new generation of console accessories, while Apple's iPad is flying off the
shelves.

Nintendo, which means "Leave luck to heaven," is the only major
player in the pre-holiday rush without a significant new hardware
product.

The company is betting on a glasses-free 3D-capable handheld game
player, the 3DS, to be launched in late February in Japan and in March
in the United States, but it no longer has the market to itself.

"Users have a growing range of options. It's not just Nintendo any
more," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment
Management Co Ltd, which does not hold shares in Nintendo.

"Within that fragmented market, they are not going to be able to take
the kind of share they had before, and margins will be thinner."

After a three-year run of record earnings to March 2009, Nintendo's
margins have deteriorated sharply and the company has forecast profit
will fall to its lowest in five years for the year to March 2011.

This marks a return to levels before CEO Satoru Iwata, a former game
designer, launched the Wii and expanded the gaming population, toppling
Sony from the industry's top spot.

New editions of blockbuster software franchises including Microsoft's
Halo:Reach and Sony's Gran Turismo 5 have also grabbed headlines, while
analysts say Nintendo lacks a compelling new software offering,
traditionally a source of healthy profit.

But sales of the Wii console hit a record last December in the United
States, the largest market for the sector. Nintendo is hoping its broad
appeal can help it report another last-minute spike in sales this year
to help meet its reduced forecast of 17.5 million for the financial
year.

"They're much more about Christmas and family and buying the
presents," said David Gibson, head of equity research at Macquarie
Capital Securities. "You tend to see numbers bad now and then in
November and December a significant improvement."

Nintendo's shares are languishing at about 23,000 yen, down nearly 70
percent from their 2007 peak, also hit by a strong yen, but analysts
say the shares are unlikely to fall much further, thanks to expectations
over the 3DS.

Microsoft has sold more than 2.5 million of its futuristic
controller-free Kinect gaming systems for its Xbox 360 console this
season.

Sony also boasted shipping 4.1 million units of its Wii-like Move
accessories for the PlayStation 3 worldwide in the two months since
launch.

But it was not clear how many units of either accessory were sold to
new console customers, the key to expanding the user base and thus
profitable software sales.

Nintendo, whose Wii is still far ahead in cumulative sales, said it
had sold 600,000 Wii consoles in the United States in just a week from
November 21 and November 27.

PRICING POWER

As widespread economic uncertainty persists in the main gaming
markets of North America, Europe and Japan, pricing may play to
Nintendo's advantage.

"They've got the pricing lever to pull," said analyst Jay Defibaugh
of MF Global. "It's a very price sensitive segment. There's a big
difference between $199 and $99 dollars, for example."

However, the sector is facing a tough time.

U.S. video game sales are down 8 percent this year on top of an 8
percent drop in 2009, according to retail research firm NPD, though the
figure excludes growing areas such as online and mobile games.

Also, Nintendo's glasses-free 3D concept, though much anticipated by
game fans, won't be unique by February, because Sharp Corp's 3D
smartphone will already have been on the market for months.

"Now they've got the entire concept to themselves, but it's not going
to be that way for much longer," said Defibaugh. "So it is incumbent
upon them to get that product out as soon as possible."

(Editing by Anshuman Daga)

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