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Nintendo Co. Ltd (NTDOY) has launched Wii U, its first console upgrade in six years since the release of Wii. The Wii U is equipped with next generation game play capabilities. Apart from having the regular features of a video game console, Wii U’s major upgrade includes wireless GamePad, a new controller with a built-in 6.2-inch touch screen.

In addition to the two analog joysticks, camera and speakers, Wii U is laden with an accelerometer and a gyroscope that are used for motion-controlled games. Wii U is priced at $300 (Basic) and $350 (Deluxe).

The enthusiasm of gamers for the new console is evident from the fact that Wii U is already sold out in many U.S. stores. Moreover, research firm IHS Screen Digest expects Nintendo to sell 3.5 million Wii Us in the U.S. in 2012 itself.

The fact that it was introduced during the holiday season will no doubt help numbers. Incidentally, the console’s predecessor, Wii, had sold 5.84 million units in the first four months after it was released in 2006.

The games that are available for Wii U are New Super Mario Bros. U and NintendoLand. Other games that are available are Just Dance 4 and ZombiU from Ubisoft, FIFA Soccer 13 and Madden NFL 13 from Electronic Arts (EA - Analyst Report) and Call of Duty: Black Ops II and Skylanders Giants from Activision (ATVI - Snapshot Report).

Looking at the broader landscape, Wii U is expected to boost the lackluster hardware sales performance of the gaming industry. In the last NPD video game sales report for the month of October 2012, hardware sales plunged 37% year over year. This is not a one-off incident as video game hardware sales have been trending down over the past year.

Industry experts have blamed the lack of upgraded consoles to be the primary reason for this decline. There may be some truth in the theory, since popular video game consoles, such as Microsoft’s (MSFT - Analyst Report) Xbox 360 is almost 7 years old (launched in 2005) and Sony’s (SNE - Snapshot Report) PlayStation 3 is as old as Nintendo’s Wii.

So, the need for an upgrade was long due and with Wii U we believe that the upgrade cycle has just begun. Hereafter, both Sony and Microsoft are expected to launch their new consoles in 2013. The long-term prospects of these hardware upgrades are positive for the video game industry. However, the hardware sales decline is likely to continue in the near term as customers might postpone their purchases to get the new and improved consoles.

Moreover, competition from social games and the emergence of mobile platforms, such as smartphones and tablets have been and remain headwinds for video game hardware sales. Video game publishers are now inclined to make games that are compatible with these devices. However, on the positive side, hardcore gamers preferring to play the games on consoles only abound.

Currently, EA, Activision and Microsoft have a Zacks #3 Rank, implying a short-term Hold rating. However, Sony and Nintendo carry a Zacks #2 Rank, implying a Buy rating in the short term.

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