Is the Era of Nintendo Wii Leadership Coming to an End?

Microsoft shipped an astronomical 8 million Kinect game system units in the past two months, leading one Wall Street analyst to declare that Nintendo's dominance in video-game consoles is over.

Kinect, a motion-sensor system for Microsoft's (MSFT) Xbox 360 video game console, is just the latest challenge to Nintendo (NTDOY), which has seen its shipments stumble in 2010. During the first half of its fiscal year, Wii shipments fell nearly 14% to 4.97 million units. And some analysts expect that trend to continue through 2012.

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"It's not like Nintendo is going to go broke anytime soon, but its days of dominance are over," Wedbush analyst Michael Pachter says.

While Nintendo doesn't have to worry about the Kinect systems sold a la cart to folks who already own Xbox 360 consoles, it does have to guard its back against those sales bundling a Kinect controller-free motion sensor system with a new Xbox, he adds.

"I bet 3 million of those 8 million Kinects went to new Xbox console owners, so that's 3 million people who could have chosen a Wii," Pachter says.

And as the Redmond giant pumps out more Kinect sales in the New Year, Pachter said he expects sales of another 12 million to 13 million, and he anticipates 5 million to 7 million of those will be sold with an Xbox.

Is Wii Losing Momentum?

Nintendo can't afford to lose more sales to Microsoft. The Redmond giant scored in October, when it sold more Xbox 360s than Nintendo's Wii and Sony's (SNE) PlayStation 3 with a PlayStation Move motion controller.

"The Wii is losing momentum," IDC analyst Lewis Ward says. Wii shipments, which accounted for roughly 50% of all game consoles sold in North America in the fourth quarter 2009, fell to approximately 40% at the close of 2010, he notes. Ward forecasts Wii sales will erode further to 32.3% this year and 28.9% next year.

He expects Sony's PlayStation 3 to lead the North American market share for shipments, rising from 29.1% last year to 34.4% this year, then to pull further ahead to 44% next year. Meanwhile, he projects Microsoft's Xbox also will gain traction, rising from 31.4% last year to 33.2% this year, before falling to 27% next year.

The Wii, which launched in 2006 shortly after the Xbox debut, dominated video game console sales through 2006 to 2008, Ward notes. But its sales began to slow in 2009, even as Microsoft added WiFi to enable multiplayer online games and Netflix movies. That same year, Sony introduced its ultra-sleek PlayStation 3 Slim model, which also could double as a Blu-ray player and high-end DVD device.

More Families Get Into Games

Microsoft and Sony began encroaching on the casual family-user market, a key market for Nintendo's Wii, expanding beyond their formerly mainly hardcore gamer customer base, explains Van Baker, a Gartner analyst. The Xbox and PS3 are becoming more like an entertainment hub for families, he says.

"By eroding the market for the Wii, it may pressure Nintendo to bring out its next generation console sooner than it planned," Baker says.

Ward expects Microsoft and Sony to continue gaining traction this year. But the prices of these three companies' consoles, as well as the types of games they attract, will plan a huge role in determining their sales in 2011 -- an even larger one than snazzy hardware features like Kinect's controller-free motion sensor system.

That may explain, in part, why Microsoft's Kinect announcement -- released after the markets closed Wednesday -- did little to sink Nintendo's share price on Thursday. Nintendo managed to finish the day up nearly 1.9% to $35.25 a share on a day when the broader markets were mixed.