Sales of the Wii U console fell to just 160,000 in the three months leading to June, Nintendo has revealed.

The dramatic figures show a drop in sales of over 50% since the preceding quarter, when 390,000 units were shipped worldwide. Concerns for the beleaguered games machine were raised earlier this week when UK supermarket chain Asda announced that it would be withdrawing the console from the shelves of its 550 retail stores – although it will still sell the Wii U and its software online.

Despite the dramatic decline of its latest home console, Nintendo has managed to report a modest net profit of 8.6bn yen (£58m), aided by the weak domestic currency – although that is against an operating loss of 4.9bn yen, due to the costs of developing Wii U and increasing ad spend on the 3DS.

The figures are, however, an improvement on this time last year, when the Kyoto-based giant revealed net losses of 17.23bn yen. Current figures have also been helped by the comparatively buoyant performance of the Nintendo 3DS handheld, which shifted 1.4m units, helped by the arrival of popular game franchises such as Tomodachi Collection and Animal Crossing.

Despite, the Wii U's decline, Nintendo is sticking with its previous forecasts and expects to sell 9m consoles by the end of March 2014. In its financial report, the company points to a strong line-up of forthcoming first-party titles, including the critically acclaimed Pikmin 3, as well as Wii Party U, Donkey Kong Country: Tropical Freeze, Super Mario 3D World and Wii Fit U.

Elsewhere in the industry, however, the optimism is waning. "Nintendo is still a strong company, but the Wii U is in serious problems," says Matt Martin, editor of news site, Gamesindustry.Biz. "It sold less than 10,000 units in Europe in the last three months, that's pretty dire – and some games are selling less than a thousand copies a week. Nintendo is telling us to wait for the new software, but consumers aren't waiting, and in a few months time the Wii U will be in direct competition with the PlayStation 4 and the Xbox One. That's when it will really start struggling."

Piers Harding-Rolls, head of games at IHS Electronics and Media highlights Nintendo's tardiness in exploiting downloadable games – even though its online eStore has improved hugely over the last few months. "Nintendo has a long road to travel before registering significant scale from sales of digital content and makes enough to offset a lower volume of sales and increased R&D costs. While Sony and Microsoft generate billions of dollars of consumer spending through their online platforms, IHS estimates that consumer spending on Nintendo digital content amounted to a little under $250m in 2012, far behind these other companies."

In many ways, the Wii U proposition has been troubled since the beginning. When the machine was revealed at the E3 conference in 2011, many reporters did not understand whether the product being shown was a new console or a new joypad for the original Wii. Later, it became clear that the main selling point of the Wii U was its GamePad, a special controller complete with its own built-in screen. However, both Nintendo and the games press found it difficult to explain the benefits of the system to mainstream consumers.

"The hardware always looked interesting, but for a lot of people, they got hold of it and thought 'is that it?'" says Martin. "The problem is, everyone was used to high quality tablets like the iPad and some of the Android devices. They are more responsive with better screens. The GamePad feels a little Fisher Price."

When the Wii U launched in Winter 2012, the software line-up was widely criticised by gamers, with very few strong first-party titles and patchy support from major players such as Activision, EA and Ubisoft. Although titles like NintendoLand, ZombiU and Pikmin 3 have been received enthusiastically by fans, new titles have been thinly spread, with almost no platform exclusives. The key publishers are now reconsidering their support for the platform.

"Wii U's continued underperformance is not a huge surprise given its lacklustre software line up and unclear user proposition," says Nick Gibson, an analyst at Games Investor Consulting. "While the slate for 2014 in particular looks stronger, it is difficult to envisage a 3DS-style turnaround for the Wii U, at least in the foreseeable future. The casual gamers that flocked to the Wii have moved on to other platforms, in particular mobile, tablet and Facebook, and the hardcore gamers that Nintendo hoped to bring back with the Wii U will be well catered for with existing and next-gen consoles from Microsoft and Sony."

For the close of the year then, Nintendo will be pitching its major game brands against two new consoles. The other option is to draw back from the Wii U and concentrate on 3DS. "Nintendo can survive as a handheld games company, it did that during the GameCube years," says Martin. "Every iteration of the Nintendo DS has done well. I don't know how they would ramp down the Wii U without losing face, but perhaps [CEO Satoru] Iwata will have to take the hit on that."

The alternative is to follow Sega's lead. When that company's Dreamcast console failed in the early 2000s, it closed its home hardware division and concentrated on its game franchises and arcade market. The prospect of Super Mario and Zelda appearing on iPhones and Xbox consoles will be mouthwatering to some, but it will perhaps take more than a poor quarter to push Nintendo in that almost unthinkable direction.