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“We believe the company’s focus on doing both hardware/software, while noble, will ultimately limit their ability to be relevant in a ‘smartphone in every pocket’ world,” he said.

Gibson suggests Nintendo needs to take “radical” steps, such as buying U.S. video game publisher TakeTwo Interactive Software and making its hit game “Grand Theft Auto” exclusive to the Wii U, which would attract core gamers to the platform.

For now, Nintendo is banking on the cheaper 3DS and new games to lure shoppers during the critical year-end shopping season. “Super Mario 3D Land” goes on sale in November, and “Mario Kart 7” hits stores in December.

The company bases its earnings on Japanese accounting standards.

Its new earnings projection is based on a revised exchange rate assumption of 80 yen to the dollar.

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Follow Tomoko A. Hosaka at http://twitter.com/tomokohosaka