By Ryan Olson

Strong demand for the portable powerhouse known as the Nintendo DS, Microsoft’s year-old Xbox 360 console, and new consoles from Nintendo and Sony at the start of the holiday season drove U.S. game industry sales to record highs in 2006.

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The winner? Microsoft, Nintendo, or Sony—depending on how you slice your statistics.

According to figures released Thursday by research firm NPD Group, the market hit $12.5 billion during 2006, up from last year’s record $10.5 billion. December alone generated some $3.7 billion—nearly 30 percent of yearly sales.

Software led the way in December, up 5.4 percent to 1.7 billion. Hardware sales posted huge gains, jumping 59.2 percent to $1.6 billion. For the year, software sales inched up 6.4 percent to $6.5 billion, while hardware jumped a hefty 43.8 percent to $4.6 billion.

Nintendo’s DS handheld remained the king of the portables, moving some 1.6 million units in December. Lifetime U.S. DS sales now stand at more than 9 million. The system debuted in 2004 and saw a product revision earlier this year, which helped maintain sales momentum. Worldwide, Nintendo has sold more than 27 million DSes.

Sony’s PSP sold more than 950,000 units in December, bringing lifetime U.S. totals to 6.7 million. Worldwide, Sony has shipped more than 23 million PSPs.

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PlayStation Power

While Sony and Nintendo brought shiny new consoles to American gamers in November and Microsoft did the same one year earlier, the category winner in 2006 was Sony’s aging PlayStation 2.

According to NPD, gamers bought 1.4 million PS2s in December, bringing lifetime U.S. sales for the system to just over 37 million. Worldwide PS2 sales are well over the 100 million unit mark.

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“If there was ever any doubt about the power of the PlayStation brand in the U.S., the December NPD data should quickly quell it,” Sony Computer Entertainment head Jack Tretton said in a statement. “These sales figures bode very well for the company heading into 2007.”

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The continued strength of the PS2 certainly helps Sony, but the company’s future clearly resides on the shoulders of its next-generation console, the PlayStation 3.

In that category, Microsoft is laying claim to the crown. NPD now pegs the U.S. user base for the company’s Xbox 360 system at 4.5 million. Nintendo is in second place with 1.1 million Wiis, and Sony brings up the rear with 687,000 PlayStation 3s.

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Earlier this week, Microsoft Chairman Bill Gates told Consumer Electronics Show attendees that his company has now sold more than 10 million Xbox 360s. Redmond also announced plans to offer Internet television for the device by the end of 2007. “This is the next generation of channel surfing,” he said (see Gates Readies for War with Apple).

Gates Readies for War with Apple

The coming year will be a big one for all three game giants. While Microsoft has yet to announce sales goals for the coming months and beyond, Sony said it still plans to ship 6 million PS3s to the world by the end of March (see Sony: On Target for 2M PS3s).

Sony: On Target for 2M PS3sNintendo also plans to ship 6 million Wiis by the end of March. Earlier this week, the company raised its profit outlook—for the second time since October. Nintendo now expects to generate $1 billion in profits on sales of $7.5 billion (see Nintendo Raises Outlook… Again).