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Analyst: 3DS Launch Could Lead To Higher Software Prices

Analyst: 3DS Launch Could Lead To Higher Software Prices

July 26, 2010 | By Leigh Alexander

July 26, 2010 | By Leigh Alexander
More: Console/PC

Nintendo's facing "weak" hardware and software sales, but it's the contraction in DS software that's been the most severe, says Wedbush analyst Michael Pachter -- who concludes that the company will likely leverage the launch of the 3DS to drive software prices on its portable platform higher.

Like many industry-watchers, Pachter was impressed by the 3DS' E3 showing, calling it a "revolutionary" device, and predicting "Nintendo will be able to sell millions of units even at a price of upwards of $250."

He continues: "From a software perspective, we believe Nintendo will be able to increase DS software prices, from a blended average of around $25 today to over $29 next year."

NPD results have indicated that the new Wii Sports Resort bundle with MotionPlus that launched in May helped raise Wii sales for the first quarter 4 percent -- but this growth was offset by a 45 percent decline in DS hardware units.

As a result, Pachter lowered his quarterly estimate for Nintendo to 215 billion yen ($2.47 billion) versus the 259 billion yen ($3 billion) previously projected. As the year continues, current sales weakness and the continued "drag" of exchange rates currently unfavorable to the Japanese yen will continue to be a problem for Nintendo, he says.

However, the analyst notes that the anticipated strong launch of the 3DS in the fourth quarter of 2011 should present a better outlook for fiscal 2012. Nintendo's fiscal year ends March 31, and its first quarter closes June 30.

"Despite Q1 weakness, we believe the company will track about in-line with its FY:11 guidance for DS hardware (30 million units) and software (150 million units) and Wii hardware (18 million units) and software (165 million units)," Pachter concludes.

"Wii unit sales should continue [to] accelerate due to the new bundle and a solid release slate (Super Mario Galaxy 2 in Q1, Metroid: Other M in Q2), while DS sales should pick up once the 3DS is introduced (by fiscal end March 2011). "

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