Wii Losing Its Cool & Partners' Money (NTDOY, MSFT, SNE, GME)

Nintendo (NTDOY) had a major winner on its hands with the Wii gaming system.  Yet no fad lasts forever.  It has been known for some time that the Wii gaming system was falling victim to the same trends of slowing video game console sales hurting the Microsoft Corp. (NASDAQ: MSFT) Xbox 360 and Sony (NYSE: SNE) PlayStation 3.  But now things are really slowing down here for the console maker, even to the point that it seems that Nintendo’s parts suppliers are feeling the crunch.  This spells more caution for the sector.

A report from Nikkei in Japan shows that shares in Japan of parts suppliers are taking it on the chin.  Mitsumi Electric and Hosiden Corp. have taken a hit, and the fallout has even hit semiconductor supplier NEC Electronics.  MegaChips Corp. is another likely victim according to the Nikkei report.

For some further data, we noted at the end of October how Nintendo announced that from April to September it only sold 5.75 million units of the Wii, down from 10 million in the same period the year before.  And the figure for the year down to 20 million.

There is just one problem with all of this…. Nintendo followed Sony’s PS3 and Microsoft’s Xbox 360 price cuts for the gaming console.  This spells trouble for GameStop Corp. (NYSE: GME) and other pure-play gaming retailers.  Lower new units and lower priced and discounted video game titles galore.  That creates margin pressure even if unit sales hold up.

The recession and rise in unemployment was supposed to keep video games and other stay-at-home trade stocks somewhat insulated.  When prices are lower and unit sales are lower, that does very little for anyone.

There is a cure, and you’ll probably start hearing about it by mid-2010… A whole new slate of video game consoles from the manufacturers for 2011.

JON C. OGG