According to a series of reports from DFC Intelligence, sales for iPhone games are expected to command about 24% of total portable game sales by 2014.

“The dedicated portable game systems from companies like Nintendo and Sony are still expected to lead the market, but it appears growth for these devices has peaked. The platforms from Apple are expected to be responsible for the bulk of market growth over the next few years,” says DFC analyst David Cole.

It's clear that the iPhone competitive threat is real, as both Sony and Nintendo have both launched enhanced versions of their handheld systems that now offer an apps store similar to the one on the iphone. In July, Nintendo had already indicated that sales for their DS system could be hampered ongoing by the iPhone threat.

After reviewing some of the data, what's become clear is that the distinction between mobile gaming and portable gaming is blurring. In many ways iPhone gaming is sitting somewhere in the middle between the two industries. So if you are a mobile gamer, iPhone games are an amazing step up from what you were stuck with before. The system is actually more powerful than the DS and PSP combined, when comparing processor speed and total memory. However many core gamers, who were weened on the DS and PSP still don't feel like the iPhone is a real contender. The lack of a control pad can greatly hamper gameplay for certain types of games that are considered real staples in a core gamer's diet, ie. platformers, driving games, etc. Personally, while I was generally of this mindset, in this past year I have steadily reduced my dependence on carrying around my DS or PSP, and solely been playing on my iPhone. There are some really amazing games on this device.

While this data is really a projection of what the market will look like in the future, I believe it is extremely difficult to forecast for two main reasons.

1. iPhone sales right now still limited in a number of key markets. In the US, iPhones are only on AT&T in the US. If the device becomes nonexclusive, then we can see iPhone sales explode as everyone on Verizon, Sprint, and T-Mobile can get one, which could potentially improve iPhone market penetration by a multiple of x3.

2. We assume that iPhone has the mobile phone market cornered, which makes it a great choice as a gaming device because you have to carry it with you as your cellphone. But what if Sony or Nintendo decided couple their next gaming system with a cellphone? Sony already has a partnership with Ericsson, and there have been on/off talks about doing a cellphone PSP for some time. As for Nintendo, they are the ONLY game publisher today that does not have ANY of their games available on cellphones. Why the holdout? If Nintendo were to offer up a DS/cellphone, imagine how they could completely dominate the market.

Either way, handheld gaming is going to be an exciting battleground in the next few years. Even more so than the console market it seems.

Source: DFC Intelligence