Since its release in November of 2004, Nintendo (PINK: NTDOY) and its portable handheld the DS has seen three hardware revisions, and has sold 132.04 million units worldwide. That makes the Nintendo DS the second-best selling gaming console in the history of the video game industry. And this week, Nintendo has slashed prices on the handheld gadget to make sure it remains dominant and can cash in on the latest upgrade to the portable gaming device.

The Nintendo DS trails just behind the Sony (NYSE: SNE) Playstation 2, which has sold 145 million units since its release in the fall of 2000, as the best selling console of all time. Yesterday, Nintendo dropped the price on the two most popular models of the Nintendo DS by $20, bringing the camera-equipped DSi down to $150 and the recently released, plus-sized DSi XL down to $170. With three successful models of DS on shelves — the 2006-released DS Lite is still a popular version at $130 — will these latest price drops make for a successful bid to take away Sony’s crown?

Probably not, with the new glasses-free, stereoscopic 3D Nintendo 3DS just six months away. But it could help prop up sales in the interim and counter flagging hardware revenue. The price drops on both the Nintendo DSi and DSi XL represent instead an effort by Nintendo to give their portable device one final holiday season of massive sales.

November and December sales of Nintendo’s handheld machine have been monolithic in recent years, with just over 5 million systems sold over that period in 2009 and 4.6 million in 2008. Sales of the DS in 2010, however, show that the machine may finally be reaching its saturation point. Even with the release of new hardware—the DSi XL hit retailers at the end of March — Nintendo DS sales are down more than -25% year-to-date. That the DS managed to move 4.5 million units between January and July of 2009, compared to under 3.5 in 2010, shows that it’s not recession-fueled consumer frugality that’s slowing Nintendo’s hardware sales. While the price drops on the Nintendo DSi models may not excite the hardware market enough for the portable to overtake the Playstation 2 as the best selling machine of all time, they will definitely make for a strong holiday for Nintendo as big box retailers make additional price cuts to push sales.

Of course, the DS’ declining sales will be a moot point come March 2011 when Nintendo is expected to release the Nintendo 3DS in North America. Unveiled at last June’s E3 media conference, the 3DS will be a significant hardware improvement over the Nintendo DSi hardware, and not just because of the handheld’s 3D capabilities. While the system’s exact specifications haven’t been revealed, the 3DS will feature greatly improved graphics over the DS, a widescreen in addition to a smaller touch-screen, multiple cameras capable of taking 3D pictures, improved wireless communication and both a gyroscope and an accelerometer for motion control. The system will also be backwards compatible with DS software, increasing both its available software library at launch and assuring developers still creating DS software that they will have a thriving audience for their wares after the 3DS’ release. It’s speculated that the DSi price drops indicate a 2010 release for the 3DS, but it’s unlikely the hardware will appear outside of the company’s native Japan before the end of the calendar year.

When the Nintendo 3DS does release see a North American release in the first quarter of 2011, it might just help spur sales of the Nintendo DSi, at least for awhile. Due to the advanced technology in the device, it’s predicted that the 3DS will sell at a much higher price point than Nintendo’s previous portable devices. While Nintendo has never launched a game console, home or portable, above a retail price of $250, some analysts have predicted that the 3DS will launch at $299. At that price, the Nintendo 3DS could make the cheaper Nintendo DSi seem like an attractive purchase for some time to come.

As of this writing, Anthony Agnello did not own a position in any of the stocks named here.

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