According to a full-year forecast ending in March next year reveals a net loss reaching ¥20 billion, which means $264 million. This is the second revision in a period of six months and both of them indicate a downward trend. The latest prediction is twice that of July, at ¥35 billion loss. Since the beginning of reported consolidated earnings in 1981, this year is the first indicating an annual loss. Nintendo does not post quarterly results because its accounting is based on Japanese standards.

At the same time, users are encountering more distractions for their free time, said Satoru Iwata, Nintendo’s President, with games for smartphones, where the iPod touch, iPhone, and Android as big contributors. In its home country, the Nintendo Wii is outdated and lacks HD gaming already offered by its competitors the Xbox 360 and PS3. Microsoft and Sony have implemented their own models of body movement interfaces and controllers with the Kinect and PlayStation Move, negating the main advantage Nintendo had.

Iwata said that Nintendo would no more rely so much on itself and promised a drastic change with the marketing of the 3DS and the Wii for the future.

Serious criticism has been brought in the past because the Japanese console maker had trouble in providing support beyond its self-produced games. The company regularly gets third-party games and has promised to give more attention to those parties, but its marketing continues to revolve solely around its games. Depending on Zelda, Mario, Animal Crossing or other in-house games to increase sales of the Wii or DS has had as a result a rise or fall in direct relation with whether a new Nintendo-made game was present on the shelves in stores or not.

Other companies like Sony or Microsoft usually have not had the same problem with their PS3 or Xbox 360. The Xbox 360 for instance has been outselling the Wii despite having a higher price and less child-friendly games.

It would not be difficult at all for Nintendo to break the sales record. It distributed 136,500 DS Lite consoles in the United States for June 2006 and also sold 300,000 DSi systems in April 2009 for the same country. Both devices were minor revisions of the hand-held of the 2004 era. The 3DS was Nintendo’s first really new hardware, with both a new processor and a glasses-free 3D display.

Nintendo is also subject of pressure and demand from Apple and other smartphone makers. The US sales have dropped about 800,000 devices from year to year, in part due to the company’s decision to postpone the 3DS past the holidays but not independent of existent gaming on the iPod and iPhone. Apple shipped about 19.45 million iPods all over the world during the same timeframe. The gaming-capable iPod has usually been the best-selling model and has been extremely popular in the United States. The impact Android had is not yet quantified but is significant too.

Attitudes at the Japanese company have changed and Apple has had a certain impact on the console design. Although glossing over this effect in the beginning, Nintendo started to attack Apple directly and as a result Internet play became a much stronger component. Consequently, on 3DS, users are now attributed cross-game friend codes and automatic game updates equally. They even get Street Pass, which is a feature that allows nearby 3DS systems to automatically play each other and exchange information.

Iwata complained that the value of games was not important for those companies and added that what Nintendo produces is value and it should be protected.

He also said that console makers, including Microsoft and Sony, long-time opponents of Nintendo, although somehow different on their practices, always have gaming as their top priority. Consequently, they all have downloadable game portals, like the WiiWare of Nintendo or the Xbox Live Arcade of Microsoft, but these have been secondary sometimes and cost more than games on mobile phones.

Iwata’s comments are a public acknowledgement of the effect the iPod touch and iPhone had on Nintendo’s sales. DSi sales fell drastically year-over-year last December by 800,000 units, part of this loss being attributed to customers who hold off for the 3DS. The drop suggests that some of those users who had passed on the DSi were already using their phones or even a device like the iPod touch or iPad instead of the console.

The comments of Nintendo’s chief also eluded many factors that usually force prices of traditional games upwards. For instance, Nintendo is dependent on cartridge-based game sales despite its Internet services. Therefore, its developers have to account for manufacturing as well as for the cut retail stores demand. Developers of iOS and Android are limited only by the revenue split with Google or Apple and have much reduced overhead in many cases. While typical 3DS games cost $40 in the United States, most smartphone games are priced only $10 or less, even when they are direct ports of DSi titles.

The Xperia Play of Sony Ericsson might challenge Iwata’s claims, as it will have console-quality games at reportedly lower prices, including PlayStation 1 ports.

The 3DS still has gaming as its central feature. Nonetheless, Nintendo is focusing less on gaming than it was in the past and directs its efforts towards 3D photography and 3D Netflix movies, which are due to come this summer.

Iwata did not directly explain the delay, but suggested that an overhaul of the online store would be the main factor. The new online store would be significantly redesigned as the browser based DSiWare store was too slow and did not provide the users with the appropriate help to discover the games. As Iwata said, it is very important in digital software distribution to prevent the software of being buried and inaccessible to users. Nintendo’s chief did not give any reason for the delay of the browser.

The Nintendo 3DS could certainly be helped by a new store and therefore any delay could be a significant setback in the attempt of the company to restore its stature. Its steep drop in sales during the holidays has been mainly attributed to the iPhone and iPod touch which had probably lured away some loyal customers. The 3DS comes with a significant increase of the performance and sports some unique features like glasses-free 3D or passive Wi-Fi game data swaps. However, it would not have web access and game downloads as Apple has for its devices for as long as three months.

A single 3D title will be published by Nintendo at launch, Nintendogs & Cats, while others will accompany the Japanese launch on the 26th of February, including Street Fighter IV, Winning Eleven 3D Soccer and Ridge Racer. Nintendo’s CEO also reiterated the company’s warning meant to advise children under six to avoid using the 3D mode when playing the console as the development of their eyesight could be affected. He outlined that the console is not dangerous, but Nintendo had to issue this warning in order to be inline with similar warnings issued by producers of 3D TVs.

When asked about the threat to dedicated console gaming represented by the iPhone, iPod touch and other mobile phones, Iwata said that any threat could sometimes be “the flip side of an opportunity”. He thinks that people who were not interested in games could be interested in taking the mobile gaming to a superior level on specialized platforms.

In the console wars, the Nintendo DS has beaten its traditional rival from Sony. While the Sony PSP has sold 51 million units, Nintendo DS has sold more than 135 million consoles since its launch. The threat represented by the combination of cheap games on iTunes store and the multitude of games on the iOS devices is certainly redoubtable. Apple announced to have sold more than 120 million iOS devices by the end of September last year. this threat is seriously considered by Nintendo.

If the deal was concluded, it would have given Apple a control system based on a camera, which would have permitted simply gesturing in front of a handheld or a computer instead of physical contact. The original focus was gaming and it became a logical option for Microsoft which tried to fight the flourishing Nintendo Wii at that time. Apple would have used the technology for direct interface elements. Computers might not have used it as a built-in feature as Kinect costs $150, even though with a game included.

The unintentional sacrifice of this technology had its roots in the negotiating method Apple used, which became more refined only recently, with full-time staff. Missing a dedicated team and not being pressed to complete the deal have both contributed to missing the acquisition of AdMob. Secretiveness has been a defining characteristic for Apple’s acquisitions because of plans very rarely being mentioned, but the presence of Google may also have rushed the acquisition of Lala and may have given Apple enough reasons to avoid driving away acquisitions like PrimeSense in the future.

Microsoft has consolidated its advantage in motion control and bought Canesta only a week ago.

The company said that the 2011 timing would cause bad financial results as shipment was initially scheduled for the holidays. Nintendo expected to make profit through the fiscal year ending in March, but now has to diminish its estimates from $2.4 billion to only $1 billion. The plans are now to sell even fewer DS devices this year than in 2009, 23.5 million versus 27 million, and four million of them would be 3DS systems.

These results confirm suppositions about the effect the iPod touch had on the Japanese company. Nintendo often has its first party titles as an advantage, but its older hardware, the more expensive games, the lack of media or Internet support have been considered elements able to steer gamers away from its DS. At $299, the 3DS would be with $50 more expensive than the fourth-generation iPod touch, not to mention its hardware drawbacks.

Nintendo has tried to keep away from acknowledging Apple was a main rival to it, but this was only publicly, because privately it seemed to treat it as its main enemy and even dismissed the PSP of Sony as a non-factor. In turn, Apple did not hesitate to pit the iPod touch against Nintendo as well as Sony. It claimed to have sold more iPods in a single quarter than the PSP and DS together.

Nintendo 3DS comes in two colors, black or aqua, bundled with a 2GB card to increase the storage. Six augmented reality cards for virtual characters are also planned to be available. NTV and Fuji TV will run a test project with 3D video streaming for 3DS users. Veteran gamers can choose to download Virtual Console-like original Game Boy Advance or Game Boy titles.

The design includes a 3.5-inch Sharp screen with a resolution of 800×240, which produces glasses-free 3D. Its 3D effect can be muted entirely or only dialled down. A three-inch touchscreen with a resolution of 320×240 provides backward compatibility and control. A camera is placed on the inside, dedicated to self portraits and auto-generation of Mii character. Twin cameras placed on the outside provide 3D images. A gyroscopic sensor and an accelerometer will support gaming, while an analog stick is dedicated to more complex titles.

The 802.11g Wi-Fi supports WPA2 and WPA as well as a persistent connection for content download in the background. A trick “tag mode” will encourage spontaneous multiplayer. In some titles like Super Street Fighter IV, the device is capable of notifying when another player, even closed, is nearby in order to offer a chance to play.

Being part of the launch, the Wii Remote Plus was also confirmed but no details have been given. Nintendo also promised a Japan-oriented, Super Mario 25th anniversary DSi LL which would come on January 28th 2011 and is expected to cost the equivalent of $215.

Cammie Dunaway has been a promoter of Nintendo’s latest successes. He took over from Reggie Fils-Aime, now president of the US branch, in November 2007. It happened when the Wii was just beginning to ramp up seriously and the DS was relatively unchallenged.

The departure of Dunaway comes in a significant moment as the company is confronted with a rapid decline in interest. Last month, the Xbox 360 of Microsoft beat Nintendo in an almost unseen feat since the Wii and DS were available and this was the second consecutive month it happened. The sales have been dropping drastically this year and the DS was especially hurt with its sales almost dropped by fifty percent from year to year. Although the company tried to revive sales by bundling the Wii with extra features, it has not had much success. It is possible that the DS does not recover significantly until the launch of the 3DS in the fall.

Nintendo has not indicated a particular cause for the decline, but the general impression is that Apple is an important threat and the competition with the iPhone and iPod touch has hurt the company. Apple claims to have drawn revenue share away from the DS and Sony’s PSP as well. It also claims to be larger related to device volume than the DS and PSP together. The advantages of the iPod touch would be the Internet-only game sales version, much lower prices, more advanced hardware and also stronger media support.

The currently available Wii console does not support high definition graphics, like the competitors do, but this relative deficiency has not impacted on the company’s much higher number of devices sold. Motion-based controllers that the Wii has introduced are now adopted by other companies for their products, such as the Kinect from Microsoft or the PlayStation Move from Sony. Considering these aspects, Nintendo may think it is about time to offer 3D and high definition TV support for the home console it produces.

Sony itself is planning to provide 3D gaming to its PS3 consoles early this summer. Microsoft is also thinking to join forces with LG into similar plans, but this will not happen in the near future.