Nintendo Wii having a tough time in Japan

To add insult to injury, arch-nemesis Sony (NYSE: SNE) PlayStation 3 outsold it during the same timeframe. Sony moved almost 147,000 consoles, while the Wii sold a little over 99,000 systems. That has to hurt. Indeed, Nintendo CEO Satoru Iwata made some blunt comments concerning the troubled state of the Wii in his country. He says that the Wii is currently "in the most unhealthy condition since it hit the Japanese market." And he implies that Japanese gamers may have lost some of their attraction to the system and its novelty.

Well, that sure is a mouthful. For those of you who have considered investing in the company's stock, I can imagine that sentiment is not putting you in much of a buying mood, either. I certainly wouldn't want to be buying the ADRs right now if the company's own CEO is saying his country is bored with his product. And although I'm hesitant to even bring it up since it was a lousy indicator the last time I used it: In my area, there is an abundance of Wii systems. Any parent who wants one to give to their kids as an Easter present will have no problem.

The Wii, however, is going to play second fiddle in the headlines to the new hardware in town, at least for the moment. I speak, of course, of the Nintendo DSi. The portable gaming device, which includes a camera and other enhanced capabilities, has moved over 600,000 units in the U.S. and Europe. Nintendo seems to have created a juggernaut, and what it wants to do now is leverage the popularity of the DS franchise to keep sales of the Wii going; it's sort of like the iPod serving as a gateway to consumer acceptance of Apple (NASDAQ: AAPL) computers. If it can hold off from offering the market a price cut for as long as possible, then it will be beneficial to the gaming giant's bottom line.

Maybe Nintendo should explore the possibility of a price cut after the next Christmas season. Maybe scale back production on the Wii and try to keep the price where it is. Still, things are becoming more and more competitive this console cycle. If the brand equity of the Wii really starts to fade not only in Japan but in the U.S. as well, then Microsoft's (NASDAQ: MSFT) $199 Xbox 360 model will start to look increasingly attractive to parents.

We'll just have to wait and see how the scenario shapes up. Nintendo can focus on the DSi launch and simply keep an eye on the sales trends. Investors, however, should probably be wary of the stock for now.

Disclosure: I own Microsoft and have covered calls written against the shares; positions can change without notice.