UBS Nintendo analyst in Japan Shunsuke Tsuchiya has issued a lengthy report comparing increasing hardware performance with an expansion of genres and users in the video game market. While Nintendo's focus has obviously been on the latter, Tsuchiya is a big believer in both "vectors."
"We think that growth in the game market proceeds along two factors, (1) improved processor speed and greater software capacity (high image quality), which we define in this report as user needs, and (2) the creation of new genres, which we define in this report as broadening the target market," he said. "Within that context, because of differences in the timing of platform introductions between portables (every five years) and consoles (every three years), we think performance improvements are the growth driver for portables, where genre expansion is already well along, and that genre expansion is the growth driver for consoles, where performance improvements occur first."
Regarding Nintendo specifically, Tsuchiya said, "Nintendo has the leadership role, and as long as it is able to maintain performance improvements within user budgets, it should be able to maintain superiority with its next-generation versions of NDS and Wii... If Nintendo can launch the next-generation hardware while maintaining backward compatibility and improve [processor] capacity to 400 MHz or above for the portables by FY09 and to 2000 MHz or above for the consoles by FY10, we predict that Nintendo will be able to maintain its predominance in the market for the next five years."
He continued, "We think that if Nintendo is able to leverage technological progress in semiconductors and improve performance based on the usual rate of cost reductions (about 30% annually for semiconductors), while maintaining backward compatibility with the current versions of NDS and Wii, it should be able to maintain a high level of price performance at a price users can afford in both the console and portable markets... Provided that Nintendo follows the same strategy that Sony did in its generational shift from the PS1 to the PS2, it should be able to pull this off."
While Nintendo has long dominated the portable/handheld video game sector, Tsuchiya does believe "user needs are beginning to exceed the processor performance of the NDS currently on the market. If the next-generation NDS does not include performance enhancements, the PSP is likely to regain market share, and we think this would create upside potential for Sony." As such, he thinks that Nintendo will release a next-gen DS handheld within the next year.
