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Next for Nintendo: A Leap to Apple's iPhone?

As 3DS sales disappoint, investors putting pressure on Nintendo to move into smartphone market.

Remember when Sega abandoned the hardware biz to be a games-only developer? More than a trifle unsettling for gamers accustomed to Sega perennially battling Nintendo, but here we are, a decade later, and the Tokyo headquartered company has thousands of employees and over $5 billion in annual revenue. Not too shabby for a company that in March 2002 had racked up five consecutive fiscal years of net losses, and that even today arguably holds a fraction of Nintendo's intellectual property cachet.

So what about Nintendo? In late July, they slashed profit forecasts a stunning 82 percent, largely based on unexpectedly soft 3DS sales. Could the 3DS be the company's Dreamcast? It's surely underperforming by investor metrics, a serious enough problem to prompt an unprecedented price cut this month: 40 percent in Japan and 32 percent in the U.S. (the cut officially goes into effect tomorrow, though some are selling the system at the new $170 pricepoint early). It's exactly what it looks like: a desperate move by a once dominant company facing total war from sectors (smartphones, tablets) it still claims not to be in competition with. Should Nintendo president Satoru Iwata swallow his pride and consider developing games for non-Nintendo products, say Android OS or Apple's iPhone?

That's the question posed by Bloomberg, who go on to suggest investors are pummeling Nintendo's stock price because it's not developing games for the iPhone.

"Smartphones are the new battlefield for the gaming industry," a fund manager at Tokyo-based Stats Investment Management Co. told Bloomberg. "Nintendo should try to either buy its way into this platform or develop something totally new."

Before you balk, consider this: When Pokemon Co., formerly a Nintendo subsidiary, announced it would develop for the iPhone and Android OS, Nintendo shares leapt, but when Nintendo later claimed the move had nothing to do with its Nintendo-only hardware strategy, investors fled.

True, the 3DS's downfall has less to do with the hardware than the system's lukewarm software lineup, with relatively big name disappointments, from Madden NFL Football and Tom Clancy: Splinter Cell 3D to Rayman 3D and Resident Evil: The Mercenaries 3D. The only "must have" (a Zelda game with modest visual updates) originally came out 13 years ago. Nintendo's in dire straits when it's mining its back-catalogue to pay the bills.

That could change this fall, of course, with stuff like Kid Icarus: Uprising, Star Fox 3D, Mario Kart and Super Mario 3D Land.

But the writing may be on the wall: iOS and Android devices are poised to completely dominate the mobile market, with projected sales in the hundreds of millions over the next few years. Nintendo's record-breaking Nintendo DS took seven years just to hit 144 millon units worldwide, and the chances the 3DS will follow suit are beyond remote.

Analysts project Apple's iPhone will sell well in excess of 100 million units in 2012 alone. Imagine the kind of revenue Nintendo might be looking at, were it rolling out Mario and Zelda and Metroid and Donkey Kong games for that, and it's no wonder investors continue to punish Nintendo for its smartphone intransigence.

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