Nintendo reported a 51 per cent drop in operating income in the six month period that ended on 30 September, relative to the same period last year. The maker of the Gamecube and Gameboy gaming consoles reported a profit of 19.6bn yen (£95.6m). Revenue fell by 6.2 per cent to 176bn yen (£860m).

The drop in profit can be partially explained by a 4bn yen (£19.5m) increase in research in new products such as the next generation Nintendo Revolution console, which is slated for release later next year. The company forecasts that in the current fiscal year it will be spending 33bn yen (£160m) on research and development.

"The market for the current generation of console hardware is becoming saturated and is approaching a transitional phase to next generation consoles," Nintendo reported in a regulatory filing. "As a result, the overall video game market generally showed a declining tendency."

Shipments of the Nintendo Gamecube dropped by 42 per cent from last year's 1.4m to 810,000. The portable Nintendo DS that was introduced earlier this year did significantly better, selling 2.59m units.

Nintendo is aiming to tackle the slow down in the gaming industry by expanding the base of gamers to include people who have stopped playing video games as well as new gamers, the filing said. The new portable Ninendo DS is an example of the new strategy, and the forthcoming Nintendo Revolution is aiming to deliver the same to the console market.

Where the Nintendo DS features dual screens, the Revolution is expected to debut a newly designed controller.

Nintendo's disappointing financial results come only days after Microsoft started shipping its new Xbox 360 gaming console. In most stores the device sold out within hours and Microsoft predicted that it would sell 3m of the consoles within the first 90 days.