Don't get defensive just yet. We all love our Wiis. But NPD's monthly market numbers reveal much more than plain shipment numbers for the United States. We decided this month it was time to dive deep into the data, and we found that U.S. consumers are increasingly ditching the Wii and adopting rival game consoles, especially Microsoft's (Nasdaq: MSFT) Xbox 360. Nintendo (NTDOY.PK) needs a new Wii now, not in 2011 or in 2012. Nintendo has to face reality that the Wii is dying in the U.S.: It peaked in May of this year, and has peaked in January of this year, and entered a state of decline in May. It will be nearly impossible for Nintendo to return to positive growth again.

The August shipment numbers look troubling for Nintendo. Only 244,000 Wiis were shipped, compared to nearly 357,000 Xbox 360s and 226,000 PS3s. If you have been following these reports, then you already know that Nintendo's U.S. numbers have not been exactly stunning this year. You tend to lose track of how good or bad those numbers really are and what they mean. Let's have a closer look.

Current State: Xbox 360 cuts the market in half
On the surface, the Wii has sold now 30.6 million units, the Xbox 360 21.6 million units and the PS3 13.4 million units. Aside from the fact that the Wii has still the commanding lead, it is an interesting note that the Wii has a lead of 9 million units over the Xbox 360 and the Xbox 360 has a lead of 8.2 million units over the PS3. The Xbox 360 is now close to being the statistical compromise between the Wii and the PS3. The Wii has been giving up its unit lead to the Xbox 360 in May of this year; the Xbox 360 has gained over the PS3 in almost every month since the PS3's launch in November 2006.

Overall, game console sales are in a state of decline. The three manufacturers have sold 5.95 million consoles this year, which is down 18.7% from a comparable 7.32 million units in August 2009. In August 2008, the three companies had sold 8.4 million units for that year. The Wii's decline, which stands at a cumulative -21.2% in this year, is due to its originally high shipment numbers and is therefore solely responsible for this decline. Both the Xbox 360 and the PS3 have posted solid cumulative gains of 54.1% and 44.8%, respectively. The Xbox 360 has now outsold the Wii for the past four months in the U.S. and the PS3 isn't far from catching up to the Wii. The August 2010 shipment result of a total of 827,000 consoles was the worst for the three companies in 13 months. [Please check our detailed statistics for more details.]

The Wii is in trouble
You can look at NPD's numbers from various angles, which all reflect a decline of the Wii. The only positive note is that the Wii had very high numbers to begin with, and that any decline may look, visually, much more dramatic than it does for Microsoft and Sony (NYSE: SNE). At least for now, the Wii is still selling more units than Sony is selling PS3s.

However, Nintendo has clearly given up the lead it once had and may have been too cocky about its console design. In April 2008, the Wii peaked at a monthly market share of 65.8%. In August 2010, it only held 29.5%. The Wii's cumulative market share over the lifetime of this console generation is still at 46.67%, but it has been declining since December 2009, when it topped out at 48.09%. A drop of 1.42 points may not be much, but if you consider the fact that 59.5 million Wiis, Xbox 360s and PS3s have been sold in the U.S. so far, you are talking about a significant number: Nintendo is currently 845,000 Wiis behind its best times -- in terms of cumulative market share.

If we look at annual growth rates, the Wii has had a wild ride. For example, the highest annual growth was shown in January 2009 with a stunning 147.8%. It was the beginning of a severe recession, in which Nintendo hoped that people would flock to game consoles in order to save money on out-of-the-home-entertainment. It did not happen. In the following months, the growth dipped to 66.2%, 28.5% and 3.3%. By May 2009, Nintendo saw itself in negative growth territory -- which it has not left until today. That is 14 months of negative growth so far.

There are those who believe that the Wii lacks big game titles and that it has neglected third-party developers. If that is the case, then the release of Epic Mickey may show a reversal of this trend. If it does not, then we know that the Wii has saturated its market opportunity and is simply getting old.

In some way, Nintendo may have dug the grave for the Wii itself this month when it started talking about a next-generation Wii that "will leave our mouth open." What reason is there left to buy a Wii now? Both Microsoft and Sony are upgrading their controllers and systems and the Wii is ... well ... it is still the good old Wii.

It is interesting to hear that Nintendo is apparently planning a completely new game console, which could put its current Wii installed base of 60 million users at risk. Some analysts believe that may not be such a great idea as those 60 million users may be looking for a natural and soft upgrade and not something entirely new. There is the inherent chance that users will now be looking at the Xbox 360 and Kinect as a soft upgrade, and some may be looking at the PS3 Move.

A new Wii now sounds more like a console that could be shown in May/June 2011 for the first time and may not be ready until late 2011 or late 2012. Sony and Microsoft have bought themselves more time with Kinect and Move and will be able to sustain their consoles much longer than Nintendo can survive with the Wii. There are at least three or four years of life left in the Xbox 360 and PS3, while the Wii is dying and may sell considerably fewer units than the PS3 this Christmas season.

Ctech

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