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Analyst: Piracy, Apple Devices To Challenge DS

Nintendo had a very strong holiday -- but the pressure is not off, says Wedbush analyst Michael Pachter, who sees a danger that Wii and DS' advantages will continue eroding.
After months of slowing sales, Nintendo reversed its fortunes via a very strong holiday -- but the pressure is not off, says Wedbush analyst Michael Pachter. DS software sales are starting to lose steam, he says, "tracking slightly below the company’s 150 million unit guidance, and this year’s guidance reflects a significant decline from last year’s 197 million units," says the analyst. The recent experience of publishers like Ubisoft would seem to bear this out; the company, which relies heavily on its lines of casual DS titles, pegged most of its recent losses on a contraction in that market. Pachter says that piracy -- plus a new mobile platform in town -- might also be weakening the DS. "It appears that piracy in Europe and some substitution of iPod Touch games has impacted DS software sales more than we expected," says Pachter. EEDAR's Jesse Divnich also said he believes the DS is seeing increasing piracy losses -- part of his recent case for why a hardware redesign might be imminent Pachter expects the pressure on Nintendo to continue, he explains: "We think that lower pricing on the PS3 and Xbox 360 will provide consumers with a more difficult choice when considering a new console." The Wii's gone from being $350 less expensive than the PlayStation 3 to just $100, for example, says Pachter, "with the feature-laden PS3 a tempting purchase for prospective console households." "The holiday Wii sales boost was primarily attributable to a $50 gift card promotion offered by Wal-Mart," he asserts. "While we expect similar promotions at holiday next year, we expect the other consoles to be lower-priced by then, further eroding the Wii’s competitive price advantage." Alongside that eroding price advantage, says Pachter, the DS and upcoming DSi XL are in the same range as the iPod Touch: "While we think that the DS is a super gaming platform, the iPod is a more versatile device, and has a 'coolness' factor that is difficult to overcome," he says.

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