Nintendo will face calls to disclose its plans for a next generation of the Wii today after the world’s biggest games hardware company admitted that sales of its console may have peaked.

Speculation over Nintendo’s development of a Wii 2 console has intensified as the company’s stock has crumpled and the industry approaches the closely watched E3 trade show in Los Angeles next month.

In a shock to the markets yesterday, Nintendo reported that its profits in 2008 were the strongest on record but said that it would struggle to repeat the performance as sales of its two main consoles — the Wii and the DS — level off and foreign exchange turmoil destroys margins.

The gloomy forecasts triggered a sell-off of Nintendo’s shares yesterday, completing a dire run in which its stock has shed about half its value over the past year. Brokers at Nomura said that what was once the Japanese market’s “sexiest” name had lost its allure.

Although Nintendo’s operating profit came in at more than 555 billion yen (£3.7 billion) in the financial year to March 31, that 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 expected and a sign that even a supposedly recession-proof producer of cheap family entertainment has not escaped the effects of the worldwide consumer spending slump.

However, much of the damage appears to have come from the severe fluctuations in world currency markets, particularly the yen’s sharp rise against the dollar and the euro late last year.

The company believes that sales of the Wii console will grow by less than 1 per cent this year from the 26 million units last year and gave warning of a 3 per cent decline in sales of the DS from last year’s 31 million. Analysts warned of the Kyoto-based company’s urgent need for a “dazzling” pipeline of new Wii games and more innovative uses for the motion-sensitive Wii Fit balance board. Games industry experts said that the market’s immediate view on Nintendo would also be shaped by the line-up of new games at E3.

The company is known for issuing hyper-conservative forecasts, only to exceed them triumphantly later in the year. But there is growing impatience among investors for Nintendo to come out with the next game that can properly drive hardware sales.

The forthcoming Wii Sports Resort does not, on early presentations, look capable of achieving that status and Wii Music has looked weak next to the hugely popular Rock Band and Guitar Hero series on rival consoles.

All eyes will be turned on today’s presentation by Nintendo to industry analysts — an event where the company has traditionally bludgeoned spectators with a montage of teasers for forthcoming games.

However, most recent versions of that presentation have left observers underwhelmed: the once seemingly boundless possibilities offered by the Wii’s innovative control system appear to be reaching their limits and the console is beginning to look underpowered compared with the Microsoft Xbox 360 and Sony’s PlayStation3.

Hiroshi Kamide, of KBC Securities in Tokyo, said the weak-looking pipeline of Wii titles meant there would be a lot of attention on the next instalment of the Zelda games and when it was likely to be released. The series has produced a string of blockbusters for Nintendo and the announcement that the latest instalment may be in the shops by Christmas could be the “killer application” that Wii needs.

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