Analyst: 3DS Launch Could Lead To Higher Software Prices

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). "