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Thursday, July 30, 2009, 04:05 pm PT (07:05 pm ET)

Nintendo warns iPhone may damage its sales

Just recently considered the king of handheld gaming, Nintendo is now sending an alert that it could be trouble over its next fiscal year as Apple's iPhone and iPod touch might cut into its sales.

Known equally for its DS handheld and its Wii console, the company said on Thursday that it anticipates its first profit decline in four years not only because of a rough economy playing havoc with game sales but also due to harsher competition in the portable arena stemming directly from Apple devices.

In a conference call discussing the results, Nintendo didn't outline just how much it saw coming from the iPhone and iPod but tellingly didn't mention the Sony PSP, its veteran rival since 2004, as a threat. The pocket PlayStation posed little danger as its own sales were cut in half from levels that were already significantly lower than those of the DS.

Nintendo's comments are the first on-the-record statements from the Japanese company that treat Apple as a genuine competitor. The iPhone maker itself has been quick to challenge Nintendo, calling the iPod touch a "console experience," but until now hasn't been acknowledged in return.

It echoes a mounting preference for Apple's business model and for the hardware itself. With the exception of its fledgling DSiWare store, Nintendo has depended almost exclusively on physical copies to sell games and, as a consequence, has always had to charge a much higher price to ship and stock games at retail stores — something Apple has never had to do for its touchscreen devices, either of which relies solely on downloads. A cursory check many retailers prices most Nintendo DS games between $30 and $35 while an iPhone game is regularly below $10, sometimes below $5, and other times free. The wide gap has made it easier for gamers to fill their iPhones and iPods with games and lured developers with the promise of much wider exposure. Even with less than a week of the App Store being open, about a quarter of all apps for the iPhone and iPod touch were games.

Moreover, as the iPhone technology itself is at least three years more recent than the 2004-era components in Nintendo's product even when discounting the multi-touch controls, the possibilities for games have been particularly tempting for developers. Famed id Software co-founder John Carmack once described even the original iPhone processing power as superior to the DS and PSP put together and has chosen it as the sole modern handheld platform to receive ports and other games based on Doom, Quake and other properties well known by gamers but usually impractical on other consoles and phones, including the Nintendo DS line.

But while the iPhone might already be casting a shadow over sales Nintendo once thought very secure, new signs are emerging that the company may want to be fearful for sales of consoles for the living room as well. Despite the Wii being much faster than the DS, a developer from Telltale Games just this week said the iPhone was more powerful than the much larger and more expensive game system both because of genuinely speedier components but also because of arbitrary limits imposed by Nintendo on downloadable Wii games. He speculated that the company's latest adventure game series, Tales of Monkey Island, might actually look better and run faster on Apple's cellphone, which itself got a direct port of the earlier Secret of Monkey Island in recent days.

"The voices and textures [in Tales] are the way they are because we're limited to 40 megs for WiiWare titles," he said. "Frame rate issues will probably get sorted out eventually, but keep in mind that the Wii is just not a powerful console. An iPhone is much more powerful than a Wii, even."