Aug. 30 (Bloomberg) -- Nintendo Co., projecting record earnings on sales of the Wii game console, may see its stock slide as Sony Corp. and Microsoft Corp. counter with price cuts and easy-to-play games.

The increasing competition signals a ``sell'' for Pelham Smithers, who last month became the second of 20 analysts tracked by Bloomberg to recommend investors dump shares of the Kyoto-based company. Nintendo's stock, which rose to a record 61,800 yen last month, has gained 68 percent this year.

Nintendo's Wii has outsold Sony's PlayStation 3 and Microsoft's Xbox 360 on the success of ``Wii Sports'' and the ``Mario'' games. The competition, armed with machines suited for faster and more complex games and graphics, is fighting back by slashing prices and introducing easy-to-play titles to regain share in the $39 billion industry.

``This Christmas, Wii will win,'' said Smithers, a London- based analyst with Pali International Ltd., who has a 12-month price target of 50,000 yen on Nintendo stock. ``But not to the same extent they've been winning. Next year, the playing field will level even more.''

The Wii console and games accounted for 77 billion yen, about 20 percent of Nintendo's gross profit last fiscal year, according to JPMorgan Chase & Co. analyst Eiji Maeda in Tokyo. He expects that ratio to increase to 37 percent this year, with more than 230 billion yen in gross profit for Wii.

``Wii is increasingly accounting for more of Nintendo's earnings,'' said Maeda, who has an ``overweight'' rating and is among 13 analysts who recommend buying the stock.

DS Handheld

Founded in 1889 as a seller of playing cards, Nintendo remains the world's biggest handheld game maker.

Its almost three-year-old DS, Nintendo's best-selling player ever, uses a stylus control, making it easier for users to play Frisbee with virtual pets, practice calligraphy and draw pictures. Nintendo is also targeting an older audience with a ``brain-training'' game and tutorials for cooking and languages.

For the six months through June, six of the 10 best-selling U.S. video games were made by Nintendo for the DS or the Wii, according to NPD Group Inc., a market-research firm based in Port Washington, New York.

``We're trying to keep our focus on what keeps the game fun and not get caught in a technological battle,'' said George Harrison, Nintendo's marketing senior vice president in the U.S.

The Wii helped push Nintendo's profit to a record 174.3 billion yen ($1.5 billion) on revenue of 966.5 billion yen in the fiscal year ended March 31. On July 25, the company forecast profit of 245 billion yen this year with sales rising 18 percent to 1.14 trillion yen.

Surge to Record

The stock's surge this year may leave little room for growth. The shares have fallen 16 percent since July 26, to 52,000 yen yesterday in Osaka, in part because of concern the rising value of the yen will hurt sales outside Japan, said Hirotoshi Murakami, an analyst at Mitsubishi UFJ in Tokyo. He has an ``underperform'' rating on the shares.

``The valuation is high,'' Murakami said in an interview.

Nintendo's shares are trading at 26 times projected earnings, compared with an average of 17.5 times for companies on Japan's benchmark Topix index.

To maintain its edge, Nintendo must hold the interest of customers who may have bought a Wii for the novelty of swinging the controller for tennis and baseball, Murakami said.

``It's easy to get bored with games like the hit title `Wii Sports' after just a few times,'' Murakami said. ``Whether Nintendo can continue to make games that sell well remains a question.''

`Rock Band'

This holiday season Microsoft, based in Redmond, Washington, and Tokyo-based Sony will go after Wii with games including ``Rock Band,'' which allows users to play drums and guitars to rock music videos. The title, made by Electronic Arts Inc. for Xbox 360 and PlayStation 3, won't be available on Wii for Christmas.

Microsoft also is publishing ``Scene It,'' a movie quiz game in which players slap buttons to answer questions. The company this month lowered the price of Xbox 360 by $50 to $349.99 in the U.S. and made a similar reduction in Europe. Sony dropped PlayStation 3's price by $100 to $499 in July.

Sony and Microsoft probably will cut prices again as they lower production costs, pressuring Nintendo, Smithers said.

Nintendo has no plans to lower the Wii from $249, Harrison said in an interview. ``Demand continues to exceed supply'' in the U.S. and Europe, he said.

Nintendo Software

Nintendo's strength is in producing top-selling software as well as the console, said Daniel Ernst, a New York-based analyst at Soleil Securities.

``I'm not worried about Nintendo,'' said Ernst, who rates the shares ``buy'' and predicts they will reach 70,000 yen within 18 months.

The company is introducing a pressure-sensitive exercise mat for yoga and aerobics, and shooting and steering-wheel attachments for hard-core gamers, Harrison said.

Casual audiences won't make Wii the industry leader, Murakami said.

``Light users are quick to buy, but, not being serious gamers, they are also quick to get bored,'' Murakami said. ``That's one of the issues facing Nintendo.''

To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net.

Last Updated: August 29, 2007 18:29 EDT