Apple (AAPL) Moves To Conquer Its Next Frontier

The Holy Grail of consumer electronics is still a smashing success in the video game industry. Tens and tens of millions of Sony (NYSE:SNE) PS2s and PS3s were sold over the last decade. Microsoft (NASDAQ:MSFT) has turned its game console business into a real success. Nintendo has become the darling of the Japanese consumer electronics market because of huge sales of its portable DS and Wii consoles.

Apple (NASDAQ:AAPL) has done remarkably well in the computer, handset, and multimedia player sectors of electronics, but its has little or no place in the gaming industry.

Steve Jobs means to upgrade his status in the video game field. According to The Wall Street Journal, “Apple has made clear that it intends to go after Nintendo’s turf.” Among the Big Three members of the game industry, Nintendo is by far the most successful. The company is expected to sell 30 million of its DS units this year.

Analysts expect Apple to be succesful as it moves rapidly into video games. Research firm DFC predicts that revenue from Apple game sales will rise  from $46 million in 2008 to more than $2.8 billion in 2014. The forecast for 2014 seems improbably high. And, forecasts of consumer electronics activity five years from now are bound to be little more than guesses.

Apple does have some significant advantages as it moves into games inclusing its brand. The Apple name certainly helped adoption of the iPhone. A company that did not have the Mac and iPod as established products would have had a much harder time breaking into the handset field.

Apple also has the edge in its success with product design. It would be nearly impossible to name a company that has come to market with more electronics product that have become instantly popular in part because they were so well suited to consumer tastes.

Apple’s last and not insignificant advantage is its growing relationship with cellular carriers around the world, something that Nintendo lacks. Multi-player games can work on wireless 3G networks giving them many of the capabilities of larger consoles hooked up to landline broadband. 3G systems also make the download of new games relatively easy.

Apple is moving into the video game industry and it is likely that the companies already in the sector will have the same trouble handset firms had with the introduction of the iPhone

Douglas A. McIntyre