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Tech stocks: Growth ahead for handheld game consoles

Tech stocks subsector face growing competition from mobile phones and tablets. But one tech stocks analysts sees up to 20 percent revenue growth in 2012 for makers of handheld game consoles. 

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Xbox games are shown for sale at a Microsoft retail store in San Diego last week. Tech stocks like Microsoft have been helped by strong sales of handheld game consoles, which should continue in 2012, one analyst says.

Mike Blake/Reuters

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The market for handheld devices may be getting squeezed by competition from mobile gaming platforms like smartphones and tablet PCs, but research firm International Data Corporation (IDC) is predicting further growth for the sector and expects revenues to jump as much as 20 percent this year, after single-digit percentage growth in 2011.

According to IDC's research manager for gaming Lewis Ward, the experience that comes from playing handheld devices is unique to users, and adds that the short battery lifespan in mobile gaming devices will always give its handheld console rivals an edge.

 "I think the stereoscopic 3D effect [in handheld devices] is quite compelling in many respects," Ward told CNBC on Thursday. “Obviously Nintendo has some extraordinary IP, Pokemon, and many other titles which are unique to the platform and therefore provides an experience you simply can't get somewhere else.”

 “One of the important drivers for adult gamers in particular is the ability to save your battery life on your cellphone and therefore make a dedicated handheld that much more attractive,” he added.

 A recent report from IDC projects the share of video gaming revenue for handheld console devices and their related software will fall to 59 percent in 2015, compared to the current 66 percent, as more users shift to the mobile gaming platform. Even so, Ward is predicting growth for the sector.

 "I'm anticipating growth in dedicated handhelds and console gaming in 2012," Ward said. "The market has been going sideways in many respects for the past couple of years, but I'm expecting some respectable results in the fourth quarter from major providers." 

 Tech heavyweight Microsoft beat analyst expectations in its fourth quarter earnings last week, helped by strong sales of its Xbox consoles. Sony, which reports next week, is expected to barely break even in the lucrative October-December quarter, although Ward expects its handheld gaming unit do well this year when its latest PlayStation Vita console rolls out in the American and European markets in February.

Gaming giant Nintendo, meanwhile, forecasts a $580 million operating loss for the full year to March 31, after posting a 61 percent drop in third quarter operating profit on Thursday. The company also cut its forecast for its latest 3DS handheld console to 14 million units from 16 million after poor sales.

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 While investors have questioned the outlook for Nintendo on reports its chief gaming architect Shigeru Miyamoto is stepping down, Ward says the concerns are overblown.

 “My understanding is that there's been a lot of grooming going on over the years and there's a lot of very talented people within Nintendo and I fully expect that the legacy will continue. I believe its in good hands in many respects,” he noted.

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