Nintendo ramps up production of Switch as system, software boosts profits,
TOKYO— Nintendo Co.’s Switch console is becoming a major pillar of its business.
The Kyoto-based company almost doubled its annual profit forecast after production of the hybrid console accelerated and customers bought more games than anticipated. Shares in Germany rose as much as 3 per cent in low-volume trading.
Nintendo ramped up capacity to make more of the Switch, which was in short supply since debuting in March. The company now predicts it will sell 14 million Switch units in the period, up from 10 million. Software title sales will be 50 million, up from 35 million, it said. While analysts were predicting a higher forecast, the increase in production will help to ease supply concerns during the year-end shopping season, when Nintendo typically generates about half of its annual sales.
“All the pieces are falling into place for them to boost production even more next year,” said Kazunori Ito, an analyst at Morningstar Investment Services in Tokyo. “The Wii sold 100 million, and this number is starting to creep into people’s minds when thinking about prospects for the Switch.”
Nintendo raised its operating profit outlook to 120 billion yen ($1.3 billion) from 65 billion yen for the current fiscal year through March. Revenue is now forecast at 960 billion yen, up from 750 billion yen.
Nintendo is betting that the Switch will fuel a new era of growth as more people embrace its dual role as a gaming device that can be used at home or on the go. Achieving the Switch sales target will put Nintendo on track to reach about 16.7 million unit sales in the first 13 months, exceeding total Wii U shipments during the past six years.
“Our component suppliers were able to increase production — it is thanks to them that we were able to raise our forecast,” Nintendo president Tatsumi Kimishima told reporters. “We’re going to grow production capacity even more.”
Operating profit in the September quarter came in at 23.8 billion yen, based on figures derived from reported first-half results. That topped projections for 19.2 billion yen, the average of estimates compiled by Bloomberg. Revenue was 220 billion yen in the quarter, exceeding estimates for 174.6 billion yen.
Nintendo sold 2.9 million Switch consoles during the quarter and 13.9 million software titles, a faster pace than the prior period. Part of the gain is due to strong sales in Japan, where Nintendo had promised to boost Switch supply for July and August to meet higher-than-anticipated demand for Splatoon 2.
Splatoon 2, the shooting game that went on sale July 21, was a standout hit during the latest quarter with 3.6 million units sold. The game is expected to play a major role when Nintendo begins charging for its online network service in 2018.
Despite increasing its full-year Switch software sales forecast, Nin- tendo is still being conservative, according to Morningstar’s Ito. Current forecasts suggest a software-tohardware ratio of 3.6, well below the 4.5 attachment rate that Nintendo was able to achieve since April, he said. “The forecast is too low. Even the Wii U in its first year achieved a ratio of 3.9. There’s room to raise the profit forecast even more,” he said.
Nintendo’s Kimishima sought to temper expectations, however: “These are not easy figures,” he said.
The portable 3DS business appears to be approaching the end of its product cycle. Nintendo sold just13.8 million titles during the last six months, down from 19.2 million a year ago. This month, Pokemon developer Game Freak said upcoming titles Ultra Moon and Ultra Sun will be the last Pokemon games for the 3DS console. By merging home and portable gaming, some investors are concerned Nintendo won’t announce a successor to the 3DS and is abandoning its two-gadget strategy.
Another area of focus is a fledgling smartphone business that has the potential to harness valuable inhouse content from Zelda to Mario. The unit’s revenue was 8.8 billion yen, down from 9.1 billion yen in the prior quarter. Nintendo last week unveiled its third smartphone game, Animal Crossing: Pocket Camp, which will be released in late November.
Nintendo raised its operating profit outlook to 120 billion yen ($1.3 billion) from 65 billion yen for the current fiscal year through March.