It was a happy holiday season for most video-game device makers, as industry sales grew nearly 28% to $3.7 billion in December, but Sony's ( SNE) next-generation console couldn't outsell its previous version.

Sony sold 490,700 of its PlayStation 3 devices in December, according to research firm NPD, bringing total devices sold since launch to 687,300 units.

Those figures appear to contradict Sony's own recent report that, as the company had predicted, it has shipped 1 million PS3s to the U.S. so far.

A possible reason for the discrepancy in PS3 numbers could be that many units are still tied up in the retail channel, wrote P.J. McNealy, an analyst for independent research firm American Technology Research

"We believe that Sony's shipment number refers to a channel unit number, and our research indicates that a channel range of 20% to 30% for the PS3 is not unreasonable at this time," wrote McNealy. "This implies 200k to 300k units in the channel -- in transit, in warehouses and in retail shelves."

Still, wrote McNealy, there is cause for investor concern about the demand surrounding Sony's rather expensive PS3 console. Despite the seeming interest for the device, there are still PS3s available on shelves in some stores, wrote McNealy.

"This is in stark contrast to the Wii availability, which by-and-large has remained quickly sold out both at retail and on Web sites," he wrote. "While the PS3 launch is seven weeks old, we find it a little troubling to find the console in stock." Sony's 20-gigabyte PS3 model retails for $499; the 60-GB model sells for $599.

Sony said NPD numbers don't reflect sales in Canada. They also don't account for all of the retail outlets in the U.S., the largest being Wal-Mart ( WMT). "The last week of December alone we shipped 170,000 units, so it is likely that some units might be transit from the retailer's warehouses to the stores," said Dave Karraker, a Sony spokesperson.

But better news was that Sony's older PlayStation 2 console was second among all hardware systems with 1.4 million units sold. That's a bright spot for for the company, said Anita Frazier, video-game industry analyst for the NPD Group.

"The PS2 numbers show that a legacy system does not necessarily have to suffer tremendously when new hardware is launched," said Frazier. "The PS2 is now at such a great price point that makes it easy for more casual or occasional gamers to pick up a system and there is definitely a few more years of life in the PS2 and publishers can reap the benefits of its huge install base."

Sony's rival Nintendo ( NTDOY) had good news all around. Its handheld gaming system, the Nintendo DS, emerged as the overall winner in December with sales of 1.6 million units, bringing the total installed bases of the device this year to 9.2 million.

Among the newest console systems, the company's Wii was the winner in December. with 604,200 units sold, and a total of 1.1 million units sold since the launch in November. The Wii sells for $249.

Nintendo's success wasn't a complete surprise; on Wednesday, the company raised its full-year profit forecast by 20% on the basis of strong sales of DS and Wii games.

Microsoft's ( MSFT) Xbox 360 came in fourth with 1.1 million units sold in December

Overall, video-game hardware sales grew 59.2% to $1.6 billion in December

Software sales grew 5.4% to $1.7 billion in Dec. and 6.4% to $6.5 billion in 2006, said NPD.

Among game titles, Microsoft's Gears of War for the Xbox 360 ranked No. 1 in Dec. sales with 815,700 units sold, followed by Activision's ( ATVI) Guitar Hero 2 for the PS2 at 805,200 units. Electronic Arts' ( ERTS)' Madden NFL '07 title for the PS2 came in third at 737,100 units.

The video-game industry grew 19% in all of 2006 to clock $12.5 billion in sales.

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