Analysis: Apple’s swoon exposes risk lurking in mutual funds

NEW YORK (Reuters) – The nearly 28 percent decline in shares of Apple Inc since mid-September isn’t just painful to individual shareholders. It’s also being felt by investors who chased hot mutual funds that loaded up on Apple as the stock raced to a record $ 705 per share.

Apple makes up 10 percent or more of assets in 117 out of the 1,119 funds that own its shares, according to data from Lipper, a Thomson Reuters company. Those big stakes have contributed positively to each fund’s annual performance to date, with Apple still up about 32 percent for the year. It was trading at $ 527.73 soon after the opening on Friday.

But that year-to-date outcome may not accurately reflect the performance of the funds for individual investors. All told, approximately $ 4.5 billion has been added to funds with overweight stakes in Apple this year, according to Morningstar data. The majority of these dollars were invested after March and after Apple first exceeded $ 600 per share – meaning many investors have been riding down with the decline.

The $ 302 million Matthew 25 fund, for instance, holds 17.4 percent of its assets in Apple, according to Lipper. The fund’s 31.9 percent gain through Thursday makes it one of the top performing funds for the year.

Most of its Apple shares were bought years ago at a bargain basement price of about $ 125 per share. But $ 158.9 million of the fund’s assets – or 53 percent – were invested after the end of March, when Apple was trading near $ 615 per share, according to Morningstar data.

For those investors that bought after March, all that concentration in Apple hasn’t led to a stellar gain but rather a drag on the portfolio. Someone who invested in Matthew 25 in early April has seen the value of the fund’s Apple stake fall about 19 percent, while someone who invested at the beginning of September has watched that outsized Apple stake drop 27.2 percent.

In turn, the majority of the fund’s investors have reaped a much more modest performance than its year-end numbers suggest. Since the end of March, the fund has gained 6.7 percent, according to Morningstar data, far less than its 31 percent year-to-date gain and about two percentage points more than the benchmark Standard & Poor’s 500 index.

Since, September the fund is down nearly 3 percent through Thursday’s close, compared with a 1.1 percent decline in the S&P 500 in that period.

The impact of Apple’s falling stock price shows some of the drawbacks of portfolio concentration, experts say. These stakes can leave the funds overexposed to the ups and downs of one company – counter to what most mutual funds are supposed to do for investors.

“Any time you get over 10 percent of the portfolio in one company it’s a red flag,” said Michel Herbst, director of active fund research at Morningstar. Many fund managers do have risk management rules that prevent them from devoting more than 5 percent to 6 percent of their portfolio to any one stock, he said.

Then again, some funds purposely invest in just a few stocks. Mark Mulholland, the portfolio manager of the Matthew 25 fund, said that taking concentrated positions in companies is the only way to beat an index over longer periods of time.

‘RIGHT-SIZING’ PORTFOLIOS

Along with concerns about iPhone sales in China and tax-motivated selling among people who want to avoid potentially higher capital gains taxes in 2013, the wide fund ownership of Apple may be a factor in the size of the stock’s recent declines, fund managers said. In addition, with so many funds already heavily invested in the high-priced stock, there may be fewer marginal buyers available to push prices up again when shares begin to dip.

“The stock didn’t go from $ 700 to $ 520 because people didn’t like the new iPad. It’s become a favorite short of hedge funds because they know they can get in on this,” said Mark Spellman, a portfolio manager of the $ 300 million Value Line Income and Growth fund with a small position in Apple.

Short interest in the stock rose to 20.6 million shares at the end of November from 15.1 million shares at the end of September, according to Nasdaq.

“Some of my competitors have 12 percent of their assets in Apple, which I think is ludicrous”, said Spellman, who said the company is no longer trading on its fundamentals.

Sandy Villere, who has a 2.5 percent weighting of Apple in his $ 276 million Villere Balanced fund, said that some mutual fund managers are selling shares because of the over-weighting.

“Right now many people who did take huge overweight positions are right-sizing their portfolios to get it in line with their regular weightings,” he said.

Still, some bullish investors see the stock’s recent declines as a buying opportunity.

Mulholland, the Matthew 25 portfolio manager, continues to say that shares should be priced at over $ 1,000 per share based on his valuation of the company at 10 times enterprise value divided by earnings before interest, taxes, depreciation and amortization (EBITDA). Apple trades at about 7 times that figure now.

Wall Street analysts’ average price target as of Thursday is $ 742.56, according to Thomson Reuters data. But Mulholland is happy to be more bullish than his peers.

“I’m glad that I’m able to get it at these prices,” he said.

(Reporting By David Randall; Editing by Jennifer Merritt)

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‘Walking Dead’ Showrunner Glen Mazzara Leaving

NEW YORK (TheWrap.com) – Glen Mazzara, who led AMC‘s “The Walking Dead” to ratings highs after the exit of Frank Darabont, is leaving the show.

The announcement came with the unsurprising news of a fourth-season pickup for the series. It continues AMC’s rocky record with its showrunners, but the network said the decision was mutual.

While AMC has clashed with showrunners before over money, a person familiar with the situation told TheWrap that this time the issue is “100 percent not about money or contracts.”

Rather, it is about a difference of opinion over where the show should go in the fourth season and beyond. It involves AMC, Mazzara and the show’s writers and producers, who include Robert Kirkman, creator of the comics that provide the basis of the series.

Kirkman might be the fans’ choice to take over as showrunner, given that most of its characters were born on his pages. But he also has a busy career writing comics and novels.

In a statement, Kirkman said he believes Mazzara and AMC came to the decision “in the best interest of the future of the show.”

In an interview with TheWrap in October, Mazzara said he would love to remain with the show until the end, “if AMC and the fans would have me.”

“I would love to be the guy shutting the lights off,” he said at the time.

It didn’t work out that way, even though Mazzara has made “The Walking Dead” this season’s top-rated drama — even beating network shows. It also has a legitimate shot at ending the season as TV’s top scripted show overall.

“Both parties acknowledge that there is a difference of opinion about where the show should go moving forward, and conclude that it is best to part ways,” AMC said in a statement.

AMC also said the decision is “amicable” and that Mazzara will remain showrunner for the remainder of the third season, which resumes airing in February. The episodes have already been filmed, and Mazzara will oversee postproduction.

He is also looking for his next project.

“My time as showrunner on ‘The Walking Dead’ has been an amazing experience, but after I finish season 3, it’s time to move on,” said Mazzara. “I have told the stories I wanted to tell and connected with our fans on a level that I never imagined. It doesn’t get much better than that. Thank you to everyone who has been a part of this journey.”

Mazzara took over the show after Darabont parted ways with it after its first season. Darabont was just one of several showrunners to have issues with AMC.

Jason Horwitch left “Rubicon” during its lone season. The third season of “Hell on Wheels” was briefly put on hold last month when showrunner John Shiban left.

“Mad Men” creator Matthew Weiner nearly walked from the show during a contract dispute last year. And “Breaking Bad” briefly looked into leaving AMC before creator Vince Gilligan’s contract was renewed.

Kirkman’s full statement included his thanks to Mazzara and the show’s fans.

“I am in full support of both AMC and Glen Mazzara in the decision they have come to and believe the parties came to this decision in the best interest of the future of the show,” Kirkman said. “I thank Glen for his hard work and appreciate his many contributions to ‘The Walking Dead’ and look forward to working with him as we complete post production on Season 3. I am also excited to begin work on another spectacular season of this show that I know means so much to so many people. This show has always been the result of a wide range of extremely talented men and women working tirelessly to produce their best work collectively. I believe the future is bright for ‘The Walking Dead.’ Thank you to the fans for your continued support.”

Executive producer Gale Anne Hurd also expressed her thanks.

“I am appreciative and grateful to Glen for his hard work on ‘The Walking Dead,’” she wrote. “I am supportive of AMC and Glen’s decision and know that the series is in great hands with one of the most talented and dedicated casts and crews in the business. I look forward to the show’s continued success.”

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Long-lived bats offer clues on diseases, aging

HONG KONG (Reuters) – The bat, a reservoir for viruses like Ebola, SARS and Nipah, has for decades stumped scientists trying to figure out how it is immune to many deadly bugs but a recent study into its genes may finally shed some light, scientists said on Friday.

Studying the DNA of two distant bat species, the scientists discovered how genes dealing with the bats’ immune system had undergone the most rapid change.

This may explain why they are relatively free of disease and live exceptionally long lives compared with other mammals of similar size, such as the rat, said Professor Lin-Fa Wang, an infectious disease expert at the Duke-NUS Graduate Medical School in Singapore who led the multi-centre study.

“We are not saying bats never get sick or never get infections. What we are saying is they handle infections a lot better,” Wang said in a telephone interview.

What was missing from both species of bats was a gene segment known to trigger extreme, and potentially fatal, immune reactions to infections, called the cytokine storm.

Cytokine storms end up killing not only offending viruses in the body, but the host’s own cells and tissues too.

“Viruses rarely kill the host. The killing comes from the host’s immune response. So it looks like what bats are doing is depress the inflammation (cytokine storm). If we can learn that, we can design drugs to minimize the inflammation damage and control viral infection,” Wang said.

The study, which saw the participation of researchers from China, Denmark, Australia and the United States, was published on Friday in the journal Science.

Compared with other mammals of similar size, bats live a long time, with lifespans of between 20 and 40 years. Rats live between 2 and 3 years, on average.

IMMUNE GENES LINKED TO FLIGHT

Interestingly, Wang and his colleagues found that the highly evolved genes that give bats their superior immune system also enable them to fly.

Out of more than 5,000 types of mammals on the planet, bats are the only one capable of sustained flight and some species can fly more than 1,000 km in a single night.

Such intense physical exertion is known to produce toxic “free radicals” that cause tissue damage and it is these same genes that give the bat the ability to repair itself, Wang said.

“What we found was the genes that evolved fastest were genes involved in repairing DNA damage. That makes sense … because when you fly, metabolism goes up and it generates free radicals that are toxic to cells,” Wang said.

“Because bats fly, they (would have had) to evolve and adapt … to get genes that can repair DNA damage.”

Wang said we have much to learn from the bat, which has evolved to avoid disease and live exceptionally long lives.

“Cancer, ageing and infectious disease, these are the three major areas of concern for people,” he said.

“We have studied rats for 150 years to understand how to do better in these three areas. Now we have a system, the bat, that has done very well in evolution. We can learn from the bat. With modern techniques, we can design new drugs to slow down the ageing process, treat cancer, fight infections.”

(Editing by Robert Birsel)

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Borrowing grows more than expected

21 December 2012 Last updated at 13:03 ET

ONS chief economist Joe Grice: “There are straws in the wind that look promising”

The government had to borrow slightly more than expected in November.

It borrowed £17.5bn, £1.2bn higher than a year earlier, official figures show. Economists had predicted borrowing would fall slightly to about £16bn.

However, the Office for National Statistics said a 0.1% growth in the all-important services sector of the economy was “promising”.

It also revised down its estimate for growth between July and September to 0.9% from 1%.

The UK’s official statistics authority regularly revises its data on the value of the output of the economy as more information is collected from businesses.

Economists were divided as to what the different figures said about the state of the UK economy.

“All in all, the UK appears to be ending 2012 not in particularly great shape,” said James Knightly from ING.

However, for Alan Clarke from Scotiabank, the growth in services “makes it all the more likely that the UK did not slip into a triple-dip recession at the end of the year”.

The Bank of England said earlier this week that it thought the UK economy would contract again in the last three months of the year following the strong growth between July and September, when the economy received a boost from Olympic ticket sales.

Continue reading the main story
‘Significant’ investment

The services sector grew 1.2% over the period and “held on” to those gains in October, the Office for National Statistics said.

Joe Grice, chief economist at the ONS, described the service sector gains as “promising straws in the wind” for the UK economy.

He also described a £1.1bn rise in business investment to £31.5bn as “significant”.

But the economy as whole still remains 3% below its pre-recession 2008 peak, he said.

Meanwhile consumer confidence remains volatile, according to a survey by research firm GfK on Friday showing a “dramatic” fall in confidence in December, contrasting strongly with an equally sharp rise in November.

Public borrowing

The BBC’s Declan Curry explains just what GDP stands for, and why we should care

The bigger-than-expected increase in government borrowing adds to the problems faced by Chancellor George Osborne as he struggles to reduce public borrowing in the face of a stuttering economy.

November’s figure takes total borrowing so far this financial year to £92.7bn, £8.3bn more than the same period in 2011.

Danny Alexander, Chief Secretary to the Treasury said: “These figures reflect the fact that this country continues to be on a hard and difficult road back to economic prosperity.

“We’re making real progress getting public spending down; we’ve reduced the deficit by a quarter over the last couple of years and a million jobs have been created in the private sector.”

“But these figures today on borrowing and on growth reflect the fact that this country continues to face tough economic challenges, and that will continue to be the main priority for the coalition as we go into the new year.”

Rachel Reeves MP, Labour’s shadow chief secretary to the Treasury, said: “For all the chancellor’s smoke and mirrors in the autumn statement, these figures show that borrowing is rising and is up by almost 10% so far this year.

“The failure of David Cameron and George Osborne’s policies on jobs and growth means they are now even failing on the one test they set themselves – to get the deficit and debt down.”

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Showrooming little threat to clothiers in ho-hum holidays

Chicago (Reuters) – In retail, showrooming has not hit shirts yet.

Showrooming, the retail term for shoppers who try a product, then buy it cheaper on Amazon.com or other websites, has driven retailers to the point of hiding barcodes, improving their own websites and coming up with methods to get people to complete their purchase in the store.

But brand-name clothing retailers have an advantage over companies that sell items you can buy anywhere, like televisions and home goods.

“Specialty apparel retailers are some of the least affected by showrooming since the more exclusive the product is, the harder it is to showroom,” said Joel Bines, managing director of the retail practice at advisory firm AlixPartners.

That, in turn, has helped retailers like Gap Inc and Lululemon Athletica Inc find favor with investors.

A survey of 2,010 adults conducted by AlixPartners showed consumers who shop for apparel were among the least likely (35 percent) to go to other websites after they liked an item at a store, compared with 42 percent of electronics shoppers and 41 percent of those looking for accessories like watches and jewelry.

“If you look at some of the most successful (clothes) companies in the past few years, they are those that have that moat around them,” said hedge fund manager Shawn Kravetz, who runs Esplanade Capital in Boston.

He cites yogawear maker Lululemon and Gap as good examples of how it can help to have clothes that are not sold elsewhere.

If a shopper wants to buy a Banana Republic or Nordstrom shirt from the latest season, they have to buy it either from their stores or online shop.

Discount retailers like Zappos, Amazon and others stock brand-name products, but the merchandise is often not from the current season or limited in colors and sizes.

“I don’t need to see if a television fits my body shape when I buy a TV,” said Joe Megibow, senior vice president of omni-channel e-commerce at American Eagle Outfitters. The teen clothes retailer has seen better sales than its peers over the past year.

“I can get a sense of the TV and I’m good. Clothing is different. Does it fit me, is it my style, do I like the quality of the material and how it is put together. There’s so much more with apparel that matters,” he said.

That is the part of the reason, analysts say, why online-only clothing companies like Bonobos and Gap’s Piperlime have started opening brick-and-mortar stores or tied up with retailers to sell their products in physical locations.

Choice and easy availability are the two most important aspects of shopping, especially during a holiday season that has lost steam after what looked like strong Thanksgiving sales.

Estelle Tran, an “impulsive” shopper in her twenties, agreed.

“If I want to buy books, tech items, DVDs, I would definitely buy online. For clothes, I would rather (visit stores) as it is also a fun experience to try on clothes,” said the Chicago-based finance auditor.

Tran said she would definitely check prices online if she was spending more than $ 100.

Luxury and high-priced items can be more susceptible to showrooming, because pricing is what drives the behavior, said Marshal Cohen, chief economist at the consultancy NPD Group.

“With electronics and certain consumer goods it is very easy to compare specific brands across multiple websites. But (showrooming is) happening and it will be growing. If a (clothes) retailer isn’t taking it seriously, they are going to fall behind,” said Bolette Andersen, principal in KPMG’s retail industry practice.

ROOM TO GROW

Some investors are betting on apparel stocks because of their relative insulation from the threat of showrooming.

While the S&P Apparel Index has returned a sizzling 27.71 percent year to date, according to Reuters data, far outperforming the S&P 500, which is up 14.80 percent, more gains may be coming.

“We still think there’s plenty of room to grow,” said Brian Peery, co-portfolio manager at Hennessy Funds. Its growth fund, heavily weighted in apparel and consumer discretionary goods shares, is up 30 percent over the year.

“As we look into the sector 12-18 months, we continue to buy the discretionary area. Two of our heaviest investments would be Foot Locker Inc and TJX Companies Inc,” he said.

Discount chains like TJX and Ross Stores, which sell branded clothes at low prices, have benefited from the surge in bargain-seeking shoppers.

Even the stocks of retailers like Gap and American Eagle that have staged or are staging turnarounds have gotten a good boost over the year. Gap has soared 69 percent and American Eagle is up 31 percent.

R. Shawn Neville, president of Avery Dennison retail branding and information solutions, said another reason that apparel and to a broader extent other consumer discretionary stocks do well is because of their sustainability.

“In uncertain times, investors look towards market segments that have strong underlying demand which are more stable, like the apparel industry,” Neville said.

Moreover, in times of economic uncertainty, shoppers can still afford clothes and shoes, as opposed to a new car, home, or expensive vacations, helping apparel stocks do well, he said.

“Though Amazon is clearly stealing some share in various categories, clothes retailers, say Abercrombie & Fitch isn’t going anywhere. They’re not being run out of the shopping mall,” said Esplanade’s Kravetz.

(Editing by Jeffrey Benkoe)

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Nokia, RIM settle old disputes in new patent pact

HELSINKI (AP) — Nokia Corp. and Canadian smartphone rival Research In Motion have agreed on a new patent licensing pact which will end all existing litigation between the two struggling companies, the Finnish firm said Friday.

The agreement includes a “one-time payment and on-going payments, all from RIM to Nokia,” Nokia said, but did not disclose “confidential” terms.

Last month, Nokia sued the Blackberry maker for breach of contract in Britain, the United States and Canada over cellular patents they agreed in 2003. RIM claimed the license — which covered patents on “standards-essential” technologies for mobile devices— should also have covered patents for non-essential parts, but the Arbitration Institute of Stockholm Chamber of Commerce ruled against RIM’s claims.

Major manufacturers of phones and wireless equipment are increasingly turning to patent litigation as they jockey for an edge to expand their share of the rapidly growing smartphone market.

Nokia is among leading patent holders in the wireless industry. It has already received a $ 565 million royalty payment from Apple Inc. to settle long-standing patent disputes and filed claims in the United States and Germany alleging that products from HTC Corp. and Viewsonic Corp. infringe a number of its patents.

The company says it has invested €45 billion ($ 60 billion) during the last 20 years in research and development and has one of the wireless industry’s largest IPR portfolios claiming some 10,000 patent families.

Nokia’s share price closed down 3.5 percent at €3.05 on the Helsinki Stock Exchange.

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Firms spend less to pitch to kids, foods slightly better: U.S. FTC

WASHINGTON (Reuters) – Food companies spent considerably less to advertise to children in 2009 than they did in 2006, although the foods that were pitched were only slightly more nutritious, the U.S. Federal Trade Commission said in a report out on Friday.

The FTC, in a survey of data from industry, found that companies spent $ 1.79 billion to advertise to children aged 2 to 17 in 2009, down almost 20 percent, on an inflation-adjusted basis, from $ 2.1 billion three years earlier.

But that drop came not because companies were advertising less, necessarily, but because they were switching from more expensive television advertising to online marketing, the FTC said.

The FTC also found “modest nutritional improvements” in the foods advertised to children, in categories including cereals, drinks and fast-food kid’s meals.

(Reporting By Diane Bartz)

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Two Reasons Fiscal Cliff Chaos Is Actually Terrific

Immediately after House Speaker John Boehner’s Plan B fell apart Thursday night, Dow futures plummeted and the media freaked out (Huffington Post headline: “END OF THE WORLD“). Boehner and his deputies skulked out of the Capitol, humiliated. His Hail Mary plan to create leverage for Republicans in the fiscal cliff negotiations with Republicans lay in tatters. Soon, his speakership may, too.

But Plan B’s demise doesn’t ensure we’re going over the cliff—it simply narrows the options. And two bits of good news are embedded in the failure. First, if we do go over the cliff, a resolution will arrive sooner than it would have otherwise. That’s because Plan B’s biggest effect, had it passed, would have been to inoculate Republicans against the charge that they blew up the economy to protect “millionaires and billionaires” from tax hikes. Now that they’re vulnerable to that charge, public pressure will be much more intense and likely to elicit a quick concession.

Second, it’s now clear that the only way to avoid the cliff is through a bipartisan bill that can pass the House, probably with substantial Democratic support. The GOP’s self-defeating revolt will shift the center of gravity to the left. Here’s where things get tricky: Boehner has said he won’t bring a bill to the floor unless it has the support of the majority of his caucus. Lost in Thursday night’s disarray was that the overwhelming majority of House Republicans—all but 30 or so of his 241 members—supported Plan B’s tax hike on millionaires. So it’s not impossible to imagine him gaining the support of 121 Republicans (he may need fewer because of vacancies) for a deal that raises taxes on households earning, say, $ 400,000 or $ 500,000, especially if that deal also contains cuts to entitlement programs and removes the dreaded sequester.

But gaining that support is far from a sure thing. It’s what Republicans and Democrats are now frantically trying to gauge. If Boehner can’t get a majority of his caucus on board, then he’ll truly be facing the end of the world—or at least the end of his speakership. The conservatives I polled Thursday night agreed (contra some media chatter) that Plan B’s failure doesn’t threaten Boehner’s job. But they also thought that if Boehner were to pass a cliff bill without a majority of his caucus, he’d be doomed.

In a drama Aaron Sorkin might have scripted, Boehner may soon be faced with the choice of holding firm and hurtling everyone into the abyss or saving the country from chaos by passing a Democratic-friendly bill with only a minority of Republicans—at the cost of his speakership, which (more Sorkin drama) is up for a vote on Jan. 3.

Either way, though, there’s a little more certainty this morning that things will end sooner rather than later. So despite the hyperbole and market turmoil, last night’s vote actually brought some good news.

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Kenya police: 28 people killed in clashes

NAIROBI, Kenya (AP) — A police official says 28 people have been killed in clashes between farmers and herders in south-eastern Kenya.

Anthony Kamitu, who is leading police operations to prevent the attacks, said Friday that the Pokomo tribe of farmers raided a village of the Orma herding community, called Kipao, at dawn in the Tana River Delta.

The latest deaths in a tit-for-tat cycle of killings may be related to a redrawing of political boundaries and next year’s general elections, according to the U.N.

At least 110 people were killed in clashes between the Pokomo and Orma in September and October.

Animosity between the two communities over land and water resources has existed for decades.

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Nintendo’s amazing triumph in Japan may doom the company internationally

According to Japanese gaming bible Famitsu, Nintendo (NTDOY) 3DS sold 333,000 units in the week ending December 16, while Sony’s (SNE) PS Vita limped along at 13,000 units, the new Wii U did an okay 130,000 units and the PlayStation 3 managed to sell 46,000 units.  The utter hardware domination of the 3DS is reshaping the Japanese software market. Franchises that were thought to be fading have been revitalized in their portable versions. The 3DS version of the ancient Animal Crossing series, famed for being the game where nothing happens, hit a staggering 1.7 million units last week in Japan. Inazuma Eleven sold 170,000 units in its launch week, up from 140,000 units its DS version managed in 2011.

[More from BGR: RIM, HTC and Nokia could all be headed the way of Palm]

Nintendo’s portable console 3DS had a muted start in its home market in the spring of 2011. Many thought that Sony would have a fair shot at competing with Nintendo once Playstation Vita launched at the end of 2011. But once Nintendo executed an aggressive price cut for 3DS in the summer of 2011 and then launched a large-screen version of the console in mid-2012, the gadget has grown into a Godzilla in Japan, demolishing both Sony Vita and aging tabletop console competition.

[More from BGR: BlackBerry 10 browser smokes iOS 6 and Windows Phone 8 in comparison test [video]]

3DS is doing well also in America, where its lifetime sales are moving close to the 6 million unit mark this holiday season. According to NPD, the 3DS sales in the United States topped 500,000 units in November. That’s a decent number, though far from the torrid volume the portable is racking up in its home market. The U.S. November video game software chart was dominated by massive home console juggernauts: new installments of Call of Duty, Halo and Assassin’s Creed franchises shifted more than 13 million units in retail. At the same time, the Japanese software chart remains in a ’90s time warp, dominated by Nintendo’s musty masterpieces: Super Mario Brothers, Pokemon, Animal Crossing, etc.

Japanese and American tastes have always been different. But what we are witnessing now is a particularly fascinating divergence. American consumers are spending more of their time and money on smartphone and tablet games, while console game spending is increasingly focusing on massive, graphically stunning blockbuster titles on Xbox360 and PS3. The casual gamers are shifting to mobile games, while hardcore gamers remain attracted to sprawling epics on home consoles. The overall video game spending in America keeps declining month after month, as casual titles and mid-list games slide. But the Triple A whales like the Call of Duty series are doing better than ever.

In Japan, Nintendo has been able to battle back iPhone and Android game invasion with a nostalgic series of portable games that basically recycle the biggest hits of ’80s and early ’90s. Mario, Pokemons and other portable heroes are slowly losing their grip on U.S. and European consumers. But in Japan, some form of national nostalgia is keeping Nintendo on track.

The problem here is that the Japanese success of the 3DS may now be convincing Nintendo that it does not have to reconsider its business strategy. The smartphone and tablet game spending continues growing explosively across the world. Unlike console games, mobile game sales in China are legal. The global gaming spending is shifting towards new hardware platforms even as console mammoths like Halo still reign in America. At this critical juncture, Nintendo has managed to cocoon its home market in a web of nostalgia, turning the 3DS console and its Eighties left-over franchises into epic bestsellers yet again.

This means that there is no sense of urgency to push Nintendo into rethinking its long-term plans. The company may continue simply ignoring the smartphone and tablet challenge, designing new portable consoles and the 28th Mario game to support it. Twenty years ago, Japan’s insularity doomed its chances to succeed in the mobile phone business. And now the idiosyncratic nature of Japan may be leading its biggest entertainment industry success astray.

This article was originally published by BGR

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