Nintendo said today that its fiscal 2008 profits were the strongest it had ever recorded, but admitted it would struggle to repeat the performance in the current year as sales of its two main games consoles peak and foreign exchange turmoil hits the bottom line.

The gloomy forecasts triggered an hour of selling on the Osaka Exchange where Nintendo’s stock is listed – completing a poor run that has now seen the shares shed about half their value over the past year. Brokers at Nomura said that what was once the Japanese market’s most attractive stock had now lost its allure.

Nintendo reported operating profits of $5.5 billion for the 12 months to March 31. However, full-year income was well below consensus forecasts and the company said that earnings could suffer a 12 per cent decline in the current year – a worse contraction than brokers had expected and a sign that Japan’s most profitable company has not escaped the effects of the worldwide consumer spending slump.

The company is now predicting flat sales of the Wii console in fiscal 2009 and a 3 per cent contraction in sales of the DS – a forecast that forced one of the top industry analysts to admit that his forecasts of growth had been wrong.

Analysts warned today of the Kyoto company’s urgent need for a “dazzling” pipeline of new games and said that the company would now face intensifying pressure to describe its plans for a next generation version of the Wii console. Games industry experts said that the market’s immediate view on Nintendo, could now hinge on just two words: Princess Zelda.

Hiroshi Kamide, of KBC Securities in Tokyo, said that the weak-looking pipeline of Wii games means there is a lot of attention on the next installment of the Zelda franchise and when it is likely to be released. The series has produced a string of extraordinarily lucrative blockbusters for Nintendo and the announcement that the latest installment may be in the shops by Christmas could be just what is needed to maintain momentum behind the Wii.

The company is known for issuing hyper-conservative forecasts, only to triumphantly exceed them later in the year. Bulls on the stock – including analysts at CLSA, believe that Nintendo’s main difficulties are not dwindling popularity of either the Wii or DS consoles, but foreign exchange fluctuations.

But there is still growing impatience among many investors for Nintendo to come out with the next game that can really drive hardware sales. The forthcoming Wii Sports Resort does not, on early presentations, look capable of being that game, and Wii Music has looked weak next to the hugely popular Rock Band and Guitar Hero series on rival consoles.

All eyes, said one Tokyo fund manager, will anyway be turned to Friday’s presentation by the company – an event where Nintendo has traditionally bludgeoned investors with a lurid montage of teasers for forthcoming games. Most recent versions of that presentation, though, have left many observers underwhelmed: the once seemingly boundless possibilities offered by the Wii’s innovative control system appear to be reaching their limits and the console itself is beginning to look distinctly underpowered compared with Microsoft’s Xbox 360 and Sony’s Playstation3.

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