Less than a day after
Wii made its debut in North America, Gregory Quirk, a technical marketing manager for
, a firm that offers technical analysis of hardware, bought the console just to take it apart.
Quirk and his team were curious to see the insides of the Wii, searching for the chips and the components that would power the machine.
"One of the most interesting things for us was how relatively noncomplex it was compared to the PlayStation 3 and Xbox 360," says Quirk. "The board on the Wii is relatively simple and doesn't have the same number of components as the other consoles."
Inside the box were names such as
, both of which supply the sensors in the console's remote that enable and interactive feeling when playing the game;
, whose Wi-Fi chips connect the Wii remote (wirelessly) to the screen; and memory chipmaker
It was much fewer components than what a
PS3 or a
Xbox 360 sported.
Still Quirk and his team were intrigued because it offered an opportunity to look at companies that could end up flying high on the coat tails of the Wii.
In less than five months since its introduction in November, Nintendo sold 5.84 million devices and has forecast sales of 14 million systems for the fiscal ending April 31, 2008.
If Nintendo meets and exceeds expectations with the Wii, the potential upside for these suppliers in the Wii ecosystem could be big, say some experts.
The Wii could eventually account for 40% to 45% of all hardware sales for this generation, Nintendo executives have said.
That could translate into 40 million to 50 million units sold throughout the life of this console cycle, says Roger Ehrenberg, president of financial intelligence firm Monitor 110. Ehrenberg, who follows the games sector closely, does not own stocks in any of the gaming or chip companies mentioned in the story.
"As sales of the Wii kick in, I am sure these other companies will benefit either in terms of a near-term bump in EPS and/or an intermediate-term increase in market cap," says Ehrenberg.
Wii's biggest surprise and one of the major factors for the device's popularity has been its motion-controlled remote, dubbed Wii-mote. The remote translates users hand movements onto the screen, purportedly giving them heightened feelings of interactivity and connection to the game.
In a golf-themed game, this means users can mimic a swing with their hand and see that reflected on the screen. Or for a boxing game, people can throw punches and watch them mimicked in the game.
Making all this possible is Analog Devices' acceleration sensor, ADXL330, and ST Microelectronics' three-axis acceleration sensors. The sensors are based on Micro Electro-Mechanical Systems, or MEMS, technology that integrates mechanical elements, sensors and electronics on a single chip.
"Companies that will really get a boost out of the success of the Wii are the MEMS companies," says Quirk. "MEMS have typically had a lot of success in automotive applications, but had not broken into the consumer space.
But with the success of the Wii controllers, MEMS technology could find its way into more consumer products. That could make Analog Devices one of the biggest chip beneficiaries of the Wii.
Analog Devices has said it expects MEMS to become one of its biggest growth engines this year because of the rising demand for the technology in consumer electronic devices.
MEMS represented 7% of its sales in the second quarter of fiscal 2007, up from 4% in the same quarter last year. Revenue from that technology alone in the second quarter grew 23% sequentially.
Overall revenue from consumer products increased 26% year over year, largely because of the demand for MEMS-based motion sensors, said ADI in its call with analysts after the company's second-quarter results on May 22.
ADI is also adding additional capacity at external foundries to support the increased demand for the product. ADI's stock closed up 44 cents, or 1.2%, to $36.65 Friday, about 10.5% down from its 52-week high of $41.10. The stock has been up 12% since the beginning of the year.
Broadcom, whose Wi-Fi and Bluetooth technologies help the Wii remote talk to the console, could be another winner because of the Wii.
"Broadcom will definitely profit from the Wii," says Quirk. "They were quick to announce that they got a design win on the Wii, and though this may be a small part of their overall business, it could drive their growth."
The company closed at $30.62 Friday, down about 18% from its 52-week high of $37.50. The stock is down about 5.5% since the beginning of the year.
There's also Qimonda, which is trying to differentiate itself from other memory chip suppliers, by focusing on non-PC DRAM. Qimonda leads the market as the supplier for game console markers, with
as its rival.
But higher margins in the specialty DRAM business compared with its more commoditized PC-DRAM-supplier rivals could make Qimonda an attractive play.
"The success of the Wii would likely have a greater impact on Qimonda than Samsung due to the importance of its specialized chip and its smaller market cap," says Ehrenberg.
Qimonda also faces competition from
, whose chips have been spotted within the Wii.
Qimonda closed up $1.03, or 6.8%, to $15.97 Friday. The stock is, however, down 7.5% this year.
And then there are companies like
, who are part of the Wii but could see little to no upside from the console's success.
Though IBM and AMD are part of all three game consoles, Wii, PS3 and Xbox 360, revenue from the games business is likely to be a small part of the company's business. "IBM is just so massive it is hard to imagine a meaningful impact on their stock," Ehrenberg says.
Nicknamed "Broadway," Wii's processor comes from IBM; graphics chipmaker ATI, which was acquired by AMD last year for $5.4 billion, makes the graphics processor for the console.