CON­SOLE CON­QUERS

Nin­tendo ramps up pro­duc­tion of Switch as sys­tem, soft­ware boosts prof­its,

Toronto Star - - SMART MONEY & BUSINESS - YUJI NAKAMURA AND YUKI FURUKAWA BLOOMBERG

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.

KOJI SASAHARA/THE AS­SO­CI­ATED PRESS FILE PHOTO

Nin­tendo raised its op­er­at­ing profit out­look to 120 bil­lion yen ($1.3 bil­lion) from 65 bil­lion yen for the cur­rent fis­cal year through March.

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