* Year-end demand healthy despite economy
* On track to hit annual operating profit forecast
* Likely to miss 2010/11 recurring profit target (Adds details, background)
By Kiyoshi Takenaka and Noriyuki Hirata
TOKYO, Jan 15 (Reuters) - Japan's Square Enix Holdings Co Ltd said it enjoyed robust holiday sales despite a slowing economy, and the videogame maker expects its operating profit to be roughly in line with its forecast for the year to March.
The global downturn has prompted some consumers to give up purchases of big-ticket items such as cars and flat TVs, but the game industry is relatively well-shielded as people stay home and turn to low-budget entertainment.
"Demand has been generally brisk," Square Enix President Yoichi Wada told Reuters in an interview on Thursday.
"The sluggish economy has not hurt us that much yet."
Square Enix, known for such blockbuster titles as "Dragon Quest" and "Final Fantasy", said last November its operating profit was likely to dip 2.4 percent to 21 billion yen ($236 million) this business year compared with the previous year.
Analysts on average expect Square Enix to post an operating profit of 27.4 billion yen, according to Reuters Estimates.
The Tokyo-based company plans to launch the latest installment of its "Dragon Quest" game series on March 28 in Japan for Nintendo Co Ltd's wildly popular DS handheld game gear, giving itself a major sales and profitability boost.
Square Enix also plans to launch the next version of "Final Fantasy" in 2009 in Japan, further strengthening its product lineup.
Overseas launches of the latest "Final Fantasy" game will come in the business year from April 2010 or later, Wada said.
Square Enix will offer the latest version, "Final Fantasy XIII", for both Sony Corp's PlayStation 3 and Microsoft Corp's Xbox 360 in North America and Europe, and exclusively for the PS3 in Japan.
Annual earnings at video game software makers vary significantly depending on whether they launch popular titles in the year.
Square Enix has sold more than 47 million units of its Dragon Quest games and more than 85 million units of Final Fantasy titles.
EYES ON M&A
In the longer term, Wada said the company now appears likely to miss its recurring profit target of 50 billion yen for the year ending in March 2011, given the global downturn and a firmer yen, which eats into exporters' revenues when converted into the Japanese currency.
"It's going to be tough ... Just when we are trying to boost our overseas sales, the yen is getting firmer," Wada said.
Japanese videogame software makers including Square Enix and rivals Konami Corp and Capcom Co Ltd will need to expand their overseas presence as the population in Japan is shrinking as well as ageing rapidly.
He said, however, the company will continue working towards that goal through various steps including business alliances with other software makers.
For the current business year to March, Square Enix forecast a recurring profit of 20 billion yen.
Wada said he was in talks with quite a few companies on possible acquisitions, repeating his usual reply to M&A questions.
"Talks are going on with various companies at home as well as abroad," he said, without elaborating.
Square Enix last year offered to buy smaller Japanese rival Tecmo in a deal worth at least about $100 million, but Tecmo rejected the proposal and said it would instead merge with another Japanese game developer, Koei Co Ltd.
Shortly after Wada's comments, shares in Square Enix closed down 1.4 percent at 2,540 yen, outperforming the Nikkei average, which fell 4.9 percent. ($1=88.94 Yen) (Reporting by Kiyoshi Takenaka; Editing by Michael Watson)