Nintendo reports over 50% surge in profit following Switch 2 launch

The runaway success of the Switch 2 console drove up Nintendo’s net profit by more than 50 percent in 9 months to December.

On Tuesday, the Japanese video game giant launched, runaway success of the Switch 2 console drove up Nintendo’s net profit.

But a global memory chip shortage, created by massive demand for artificial intelligence hardware, threatens to push up manufacturing costs for the “Super Mario” maker.

The Switch 2 became the world’s fastest-selling games console after launching to a fan frenzy last summer.

It is the successor to the original Switch, which soared in popularity during the pandemic when games such as “Animal Crossing” struck a chord during long lockdowns. Both are hybrid devices that can be connected to a TV or used on-the-go.

“Nintendo Switch 2 got off to a good start following its launch on June 5 and unit sales continued to grow through the holiday season,” Nintendo said Tuesday. In April-December, net profit jumped 51.3 percent year-on-year to 358.9 billion yen ($2.3 billion), it said and revenue nearly doubled on-year to 1.9 trillion yen. It sold nearly 17.4 million Switch 2 devices during the nine-month period.

But the Kyoto-based company kept its annual unit sales target for the Switch 2 steady at 19 million, and also held its full-year net profit forecast of 350 billion yen.

Chip crunch

Soaring prices for memory microchips — used in games consoles as well as phones, laptops and other electronics — is set to be a headwind. Their prices have ballooned as chipmakers focus on meeting the huge demands of fast-growing numbers of AI data centres.

“Nintendo and other console manufacturers are publicly keeping quiet about the impact of the shortage,” gaming industry consultant Serkan Toto told AFP.

But “users can forget the past when consoles always became cheaper in tandem with component costs falling over time”, with price hikes potentially on the cards this year, he said.

Krysta Yang of the Nintendo-focused Kit and Krysta Podcast told AFP that a Switch 2 price increase “is not out of the question” but that Nintendo “would likely exhaust all other options” beforehand.

A lack of heavy-hitting first-party new games for the Switch 2 in coming months also risks hindering growth, although third-party titles such as “Resident Evil Requiem” should help fill the gap, she said.

Nintendo said Tuesday it planned to release “Mario Tennis Fever” this month and “Pokemon Pokopia” in March.

While the company is diversifying into hit movies and theme parks, consoles remain at the core of its business.

The Switch 1 has now sold 155.37 million units  overtaking the Nintendo DS to be its best-selling hardware of all time.

Yang and Toto dismissed fears that AI-generated games could soon spell trouble for established console makers like Nintendo. Several game-related stocks dropped on Friday after Google released its Genie 3.0 AI model, which can create playable worlds with simple prompts.

But “if you dig below the surface level of what Google’s new AI model can actually do, it’s clear that this isn’t a real ‘threat’ to the industry”, Yang said.

“Games require so much more than simple interaction and flashy graphics,” Toto added. “At least right now, AI cannot tell meaningful stories, create strong characters, or come up with fun gameplay mechanics,” he said.

Nintendo’s game consoles have sold over 860 million units worldwide as of May, for which more than 5.9 billion individual games have been sold.

The company has numerous subsidiaries in Japan and worldwide, in addition to second-party developers including HAL Laboratory, Intelligent Systems, and Game Freak. It is one of the wealthiest and most valuable companies in the Japanese market.

Nintendo was founded as Nintendo Koppai on 23 September 1889 by craftsman Fusajiro Yamauchi in Shimogy-ku, Kyoto, Japan, as an unincorporated establishment, to produce and distribute Japanese playing cards, or karuta (from Portuguese carta, ‘card’).

The name ‘Nintendo’ is commonly assumed to mean “leave luck to heaven”, but even descendants of Yamauchi do not know the true intended meaning of the name.