The NPD Group has released its latest Funworld TRSTS data, revealing that total sales for February were down 5 percent with software down 13 percent to $340 million.

Current generation software sales in particular dropped by $135 million (a decline of over 35 percent). Next generation sales were up $95 million, which (as expected) has not been enough to counteract the current-gen slump. Overall unit sales were also down 15 percent.

Five games sold over 100,000 units for the month, as compared with nine titles that did so in February 2004. The top seller on PS2, Xbox and Xbox 360 was EA's Fight Night Round 3. Nintendo's Super Mario Strikers claimed the top spot on the GameCube chart, while Take-Two's GTA: Liberty City Stories was #1 in portable game sales.

On the hardware front, sales were actually up 22 percent, but the Xbox 360 wasn't any easier to find. In fact, Microsoft shipped only 161,000 units in February compared to 250,000 in January. The total Xbox 360 installed base now stands at just over 1 million. Just like last year, though, it was the handheld sector that boosted the market.

"The story that continues to drive the industry is the performance of the handheld sector. Both portable hardware and software sales saw significant increases versus last year, while console hardware stalled, and software languished," NPD Interactive Entertainment analyst Anita Frazier told GameDaily BIZ in an e-mail interview.

"At this point, not only is the severe inventory availability of the 360 at retail impacting sales, but increased anticipation of the PS3 and Revolution launches is causing some consumers to hold back dollars in anticipation of a relatively near-term hardware purchase. So, console transition dynamics that the industry has weathered during previous cycles are certainly at play."

Frazier pointed out that February 2004 was an unusually good month for the industry, so this February was contending with some very tough comps. "What we also need to recognize when looking at the anemic software sales this month is that it is in comparison to a particularly strong beginning of the year for 2005. The first quarter of '05 was up 23% versus '04, with increases in all categories. Not only did we have continued strong sales of the mega-blockbusters GTA: San Andreas and Halo 2, the new DS and PSP hardware started the expansion of the portable market. So everything was going right last year, and this year we are navigating the tricky waters of console transition."

Wedbush Morgan Securities' Michael Pachter believes that February's poor results mark only the beginning of the console transition woes. "The rate of decline for current generation software sales is accelerating, with a 29% decline in unit sales in February on top of a 26% decline in January. On top of that, average pricing for current generation software continues to erode. This indicates that a far more dramatic and persistent slowdown in software sales is on the horizon," he said. "In particular, we believe that sales of next generation software will continue to fall short of expectations and will be insufficient to offset the decline in current generation software sales until the Sony PS3 and Nintendo Revolution are launched."

Despite the gloomy near-term prospects, NPD's Frazier is not worried at all about the industry. "I do have continued optimism for the long-term prospects for growth for the industry; it's just that everything is a little upside down and sideways right now. The consumers that enjoy games as a form of entertainment are still there, and there is much evidence that this group is growing, and that more are considering gaming one of their most favorite forms of leisure," she said.