Nintendo Co Ltd posted a 23 percent fall in quarterly profit as software sales for its DS handheld game player slowed and it cut the price of its Wii console, keeping its forecast for the first annual profit decline in four years.

Nintendo has ridden white-hot demand for the DS and the Wii to record profits in recent years, dethroning Sony Corp, which ruled the global game market for a decade from the mid-1990s.

But momentum for the once-mighty DS began to slow as it entered the fifth year of its product life a year ago, and Apple Inc's iPhone and other smartphones emerged as alternative portable game machines.

Profitability came under pressure also because Nintendo cut the price of the Wii by a fifth in the second half of 2009, responding to similar cuts by Sony and Microsoft Corp, which offer the PlayStation 3 and the Xbox 360, respectively.

Nintendo maintained its operating profit forecast of 370 billion yen (2.5 billion pounds) for the year to March.

That would be a third below its 555.26 billion yen profit a year earlier, but more than a consensus for a 361.1 billion yen profit in a poll of 20 analysts by Thomson Reuters I/B/E/S.

Nintendo shares were sold severely a while ago as market players had serious doubt about the future of its hardware. But the result today should buttress investor confidence about Nintendo, said Kazutaka Oshima, president of Rakuten Investment Management.

Apparently, its game gear still has steam left in them.

In October-December, the crucial holiday quarter for game makers, Nintendo sold 11.3 million units of the Wii, up 8 percent on the year. The DS hardware sold 11.7 million units, little changed from 11.9 million a year ago.

Nintendo suffered sluggish Wii sales in April-September, but revived demand with the launch of strong game titles such as New Super Mario Bros. Wii and the price cut.

October-December operating profit was 192.3 billion yen, down from 249.1 billion yen a year earlier.

For a graphic of Nintendo's quarterly operating profit and share price moves, click: http://graphics.thomsonreuters.com/0110/JP_NTD0110.gif

Shares in Nintendo closed up 2.5 percent at 26,320 yen ahead of the announcement, hitting a six-month high and outperforming the Nikkei average, which rose 1.6 percent.

Nintendo shares have lost 17 percent over the past year, while Sony, which saw its PS3 sales grow sharply after it cut the price, gained 68 percent.

(Reporting by Kiyoshi Takenaka, Editing by Dean Yates)

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