TOKYO: Nintendo Co is cutting back the production of Switch 2 after demand for the US$450 gaming console trailed the company’s expectations during the year-end holiday season, particularly in the United States.
The company plans to make four million units of its flagship device this quarter, a third less than the six million it had originally planned to produce, people familiar with the matter said.
The reduced output rate is set to continue in April, the people said, asking not to be named as the figures aren’t public.
After a record-setting debut in June, sales of the Switch 2 have failed to meet Nintendo management’s high expectations.
Though demand for a lower-priced but unprofitable variant in Japan has remained strong, sales in the United States haven’t met with similar continued success.
A successful launch of the Switch 2 title Pokémon Pokopia, which sent Nintendo shares soaring this month, hasn’t prompted the management to again accelerate production of the device.
Instead, it’s waiting to see if the hit game and other new titles have enough staying power to merit an output increase, the people said.
The output cut shouldn’t affect Nintendo’s ability to meet the average analyst estimate of about 20 million Switch 2 units sold in the fiscal year through this month, they said.
The Switch 2 also faces cost pressures, including rising memory chip prices that has hit electronics manufacturers across the planet.
While the higher semiconductor cost has led Nintendo to consider raising the device’s price, it hasn’t played a role in the decision to curb output.
The production cuts are driven by slower demand from consumers, the people said. Nintendo representatives didn’t respond to a request for comment.
The weaker-than-expected momentum may push Nintendo to take steps to spur demand, such as introducing new hardware variations.
A console’s second year on the market is critical to establishing long-term platform success, as a growing user base attracts developers and creates a virtuous cycle that draws in more players.
With 17.37 million units sold last year since its June 5 launch, Switch 2 is the most successful hardware debut in Kyoto, Japan-based Nintendo’s history.
Yet doubts persist about the Mario Bros creator’s ability to produce games that keep consumers shelling out for its game console, with competition intensifying from rivals such as Sony Corp.
Nintendo has acknowledged softer demand. President Shuntaro Furukawa said on a Feb 3 earnings call that “overseas sales were somewhat weaker than expected”.
Japan outperformed expectations, helped by a domestic variant priced at US$324.
A setback during the holiday season was the December release of Metroid Prime 4: Beyond, the latest installment in one of Nintendo’s most popular US franchises. The title sold fewer than one million copies that month, a rare sluggish debut for a major Nintendo release.
First announced in 2017, the game underwent a lengthy development process aimed at ensuring quality.
Shares of Nintendo fell 40% in the six months to mid-February as concerns over its titles and Switch 2’s long-term success intensified.
This month, the stock has recouped some of the losses after Pokémon Pokopia proved a hit, selling more than two million units just in four days.
Nintendo typically begins each fiscal year with a conservative hardware sales forecast and revises it upward as momentum builds, particularly after the third quarter, which captures the crucial year-end shopping season.
For the current fiscal year through March, the company initially projected sales of 15 million Switch 2 units and raised that target to 19 million in early November following the strong launch.
But Nintendo left the forecast unchanged when it reported third quarter earnings in February, a point in the cycle when it has historically increased guidance if performance is in line with the internal plan.
That decision suggests sales may have fallen short of expectations during the holiday period. — Bloomberg
