By Ryan Olson

Booming demand for Nintendo’s new Wii console and continued strong sales of its DS portable system prompted the Japanese gaming giant Wednesday to raise its annual profit outlook by 20 percent.

Nintendo’s improved forecast is further evidence that the world’s third largest game console maker has continued to thrive while rival Sony faces ongoing scrutiny following the launch of its PlayStation 3.

Nintendo now believes profits for its fiscal year—ending in March—will hit 120 billion yen ($1 billion) on sales of 900 billion yen ($7.53 billion). It’s the second time in recent months that Nintendo has raised its forecast. The company in October boosted its profit outlook to 100 billion Yen on sales of 740 billion yen (see Nintendo: Mario’s Momentum). Nintendo releases quarterly earnings later this month.

Investors sent Nintendo shares up 2.4 percent to close Wednesday at 29,150 Yen ($244) on the Tokyo stock exchange. The stock has been trading at record highs since before the Wii’s release.

Citing intense Wii demand and hardware shortages around the world, Deutsche Bank analyst Takashi Oya believes sales of the system should outpace estimates. “There is no doubt the Wii has opened up a large gap between itself and the PS3,” Mr. Oya wrote in a research note.

Nintendo on Wednesday also raised shipment forecasts on select hardware and software, predicting sales of DS systems will hit 23 million units instead of 20 million. DS software sales, which include games by Nintendo and other developers, are now forecast to reach 100 million units, up from a previous 82 million.

The company also forecast that software shipments for the Wii console will hit 21 million units, up from the previous estimate of 17 million. Wii console forecasts were unchanged, with Nintendo hoping to move 6 million units by the end of March.

Taking Things Apart

Nintendo is widely believed to be making a profit on each Wii console it sells. The Wii is the least expensive of the three new game consoles and uses the least technically-advanced components. Research firm iSuppli in November took apart a PS3 and reported that Sony was spending $840 to build its high-end system, which retails for $599. iSuppli said Microsoft’s Xbox 360, already a year on the market, was finally profitable (see PS3 Loyalty, Guts Examined). iSuppli officials said they have have no plans to take apart Nintendo’s Wii.

Contact the writer: rolson@redherring.com