The ubiquity of mobile phones capable of playing games are making the handsets a competitive threat to dedicated gaming consoles and handheld devices, a market research firm says.

The number of game-capable handsets already far surpasses that of dedicated gaming devices, and the gap is expected to grow even further in the future, iSuppli said. By the end of this year, phones with gaming platforms are forecast to reach 1.27 billion units, up 11.4% from last year. Video-game consoles and handhelds, on the other hand, will reach 52.1 million and 38.9 million units, respectively. That amounts to a marginal 0.2% rise in consoles and a 2.5% decline in handhelds year to year.

"The formidable lead enjoyed by cell phones capable of gaming will continue in the years to come with no hint of decline, and their near-universal presence gives them the potential to become a viable competitive threat to dedicated gaming platforms, primarily handheld devices," iSuppli analyst Pamela Tufegdzic said in a statement. "And although gamers who prefer a superior gaming experience will always opt for either a console or handheld, sales of both platforms tend to rise and fall based on the vagaries of product development, consumer buying patterns and economic trends."

The growing number of game-capable mobile phones, particularly smartphones, will spur growth in the overall gaming market, iSuppli said. On the other hand, dedicated consoles and handhelds, including Sony's PlayStation 3 and PlayStation Portable, Nintendo's Wii and DS portable, and Microsoft's Xbox 360 console, have reached market saturation, brought on by high price points, the imminence of next-generation products and overall economic uncertainty.

However, Microsoft, Nintendo and Sony are unlikely to hand over the gaming market to smartphone upstarts, such as Apple, Motorola, Samsung, HTC and others. Microsoft's and Sony's upcoming motion-sensing technology for playing games will help "cushion the anticipated decline of overall current-generation consoles in 2011," iSuppli said.

Also, as soon as late 2012, the big three console makers are expected to launch next-generation products, raising revenues and shipments into 2014, when the total market is expected to hit 59.9 million units.

Console makers will also try to drive sales in a phone-dominated market by focusing on growing revenue from paid downloadable content and evolving products into entertainment centers that can stream video, pictures and other media to televisions and computers, iSuppli said.

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