Nintendo operating profit up 36 percent

TOKYO (Reuters) - Japan's Nintendo Co Ltd (7974.OS) posted a 36 percent gain in quarterly operating profit on brisk sales of its Wii game gear, but the video game maker trimmed its outlook amid a global economic slowdown and a surge in the yen.

The new full-year forecast, however, still exceeds market expectations, and the creator of such game characters as Mario and Zelda raised its sales target for the Wii, saying video game demand remains robust despite the deepening financial crisis.

Both the Wii and DS handheld gear have outsold rival machines from Sony Corp (6758.T) and Microsoft Corp (MSFT.O), helped by innovative games such as the "Wii Fit" home exercise title and user-friendly hardware design.

Nintendo cut its operating profit forecast by 3 percent to 630 billion yen ($6.4 billion) for the year to March as it changed its dollar/yen assumption to 100 yen from 105 yen for the second half and its euro/yen outlook to 140 yen from 160 yen.

The latest outlook is still up from 487.22 billion yen a year earlier and above the market consensus forecast of 624.6 billion yen in a poll of 16 analysts by Reuters Estimates.

"Today's announcement offers little evidence that the slowing economy is hurting Nintendo's business," Mizuho Securities analyst Takeshi Koyama said.

"That should provide some sense of relief to investors, although it does not change the fact that the direction of foreign exchange rates remains a great source of concern."

Nintendo's July-September operating profit was 132.99 billion yen, up from 98.15 billion yen a year earlier, according to a Reuters calculation.

Sales rose 17 percent to 413.5 billion while net profit fell 28 percent to 37.56 billion yen as the yen's appreciation pared the value of Nintendo's foreign currency-denominated assets.

WHAT DOWNTURN?

Nintendo President Satoru Iwata said the game sector has been weathering the adverse business environment relatively well and the company remains securely on the growth path.

"If we look back, whether or not we have attractive games has had way more impact on our earnings than ups and downs of the economy," Iwata told a news conference.

"I think it is safe to say strong game demand is intact despite all this talk about the financial crisis."

The company raised its Wii sales forecast for the year to March by 4 percent to 27.5 million units, far outpacing Sony's target to sell 10 million units of the PlayStation 3 in the same period.

In a bid to stir up demand for its portable game gear ahead of the holiday season, Nintendo plans a Saturday launch in Japan of its new DS model that can take pictures and play music, breaking into Apple Inc's (AAPL.O) iPod and iPhone territory.

Sony this week posted a 90 percent drop in quarterly profit and has predicted its annual profit will fall 58 percent as demand slows for its digital cameras and flat TVs.

Microsoft last week reported better than expected quarterly profit and reduced its outlook by less than many investors had feared as economic conditions turn tougher.

Ahead of the results, shares in Nintendo closed up 10.9 percent, or by their daily limit of 3,000 yen, at 30,600 yen, outperforming the benchmark Nikkei average .N225, which gained 10 percent.

Shares in Nintendo have fallen 54 percent so far this year, a bigger drop than the Nikkei's 41 percent.

The stock is valued at around $44 billion, making it Japan's sixth-most valuable listed company ahead of Canon Inc (7751.T), Panasonic Corp (6752.T) and Sony.

(Editing by Dhara Ranasinghe & Ian Geoghegan)