Another Victim of the Smartphone Revolution: 3 Fools Say "I Told You So"

We Fools aren't right 100% of the time. But in this case, three of us are hitting it right on target.

Yours Truly, along with fellow Fools Rick Munarriz and Patrick Martin, have all predicted that Sony's (NYSE: SNE  ) new dedicated handheld gaming device, the PlayStation Vita, would fail. The mobile revolution being led by Apple (Nasdaq: AAPL  ) iOS and Google (Nasdaq: GOOG  ) Android is filling the need of the majority of mobile gamers.

The Vita seemed to be off to a healthy start when it launched in Japan two weeks ago. Within the first few days, more than 324,000 units were sold. That figure was about 50,000 short of the Nintendo (OTC: NTDOY.PK) 3DS debut earlier this year. Sales experienced a precipitous drop during Christmas week, tumbling by 78% to roughly 72,000 units.

Ouch.

After converting from yen, the Japanese debut prices were $320 for the Wi-Fi model and $385 for the Wi-Fi + 3G model. When it makes it stateside on Feb. 22, we can expect price tags of $249 and $299, respectively. Those price points are all insultingly high, when the 3DS is already selling for almost a third less after shaving a few pounds and smartphones that people already carry can satisfy mobile-gaming needs.

Sony never gives up its expensive proprietary format pushes, and the Vita is no different. You'd think the company would have learned its lesson with Betamax, which was 36 years ago. Over the years, it's tried MiniDiscs, Memory Sticks, and Universal Media Discs (UMDs), among others.

Comparing domestic preorder prices on GameStop's (NYSE: GME  ) website reveals that a Wi-Fi Vita along with an 8 GB memory card will run you $295. You can get an 8 GB iPod Touch for $199, with $96 left over to load up dozens of iOS games. At least GameStop has recognized the turning tide and now actively distributes iOS gadgets for gaming.

Game developers like Electronic Arts (Nasdaq: EA  ) and Activision Blizzard (Nasdaq: ATVI  ) are also onboard. iOS games may not be as high quality or as immersive as those on dedicated systems, but I'd wager they're just "good enough" for the average mobile gamer.

Sony is sticking by its prices. In August, Sony exec Kazuo Hirai told Bloomberg, "We have a very good product at a very affordable price. There's no need to lower the price just because somebody else that happens to be in the video-game industry decided they were going to." Happens to be? Competition isn't a coincidence, and pricing strategy has been a staple of rivalry since the beginning of time. Hirai needs to retake Competition 101.

Dedicated handheld gaming systems are a dying breed. There will always be a market for them, but one that is rapidly shrinking in the face of "good enough" alternatives. The 3DS took about five months domestically to chop off 30%. I give the Vita three months before we see the same.

The mobile revolution is set to become The Next Trillion-Dollar Revolution. There are lots of companies that are set to cash in on it, but one in particular has excellent prospects. The company is one of few players that will help power the mobile devices of the future, and it also has exposure to the explosive growth in China. I'm so bullish on the stock that I've given it an "outperform" CAPScallGet access to this 100% free report to find out what company I'm talking about!

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple, GameStop, and Google. Motley Fool newsletter services have recommended buying shares of Google and Apple, writing covered calls in GameStop, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 02, 2012, at 1:39 PM, vintageronjohn wrote:

    Oh, but Nintendo is still doomed, right guys? You people are ridiculous. There will always be a huge audience for dedicated handhelds--the millions who grew up with them and the 150 million who owned a Nintendo DS. The people who play on their smartphones are a different market entirely, and no matter how many sensible gamers try to tell you this, you push on with rubbish like this. Yes, Sony has made mistakes with their Vita. And Sony's Vita is suffering, not dedicated handhelds.

    Have you checked the sales figures of the 3DS?

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