Nintendo Trims Switch Sales Outlook Due to Chip Shortages

(Bloomberg) -- Nintendo Co. cut its Switch sales target in the latest response to widespread component shortages and logistics bottlenecks, which it said show no signs of easing.

The Kyoto-based company is now aiming to sell 24 million units this fiscal year, down from the previous goal of 25.5 million units. Nintendo upgraded its full-year operating profit outlook to 520 billion yen ($4.6 billion) from 500 billion yen, though that is still well short of the analyst consensus estimate of 610 billion yen.

Nintendo, known for offering conservative forecasts that allow it to weather unexpected difficulties without having to lower expectations, cited currency exchange rates as a reason for the upgrade while showing some confidence that lucrative software sales and income from network services can prop up the bottom line. The company now sees Switch software sales of 200 million units, up from 190 million.

“The one big surprise to me is how well software sales held up year-on-year,” said Tokyo-based games industry analyst Serkan Toto. The Legend of Zelda: Skyward Sword HD was released in July and sold 3.6 million copies in the quarter. “The performance speaks for the strength of Nintendo’s first-party software catalog. People who own a Switch continued to buy games for it, a very important signal for Nintendo going forward.”

Switch console sales in the July-September period were 3.83 million units, down from the 4.45 million units sold a quarter earlier. Nintendo reported operating profit during the period of 100.2 billion yen, lower than the 121.9 billion yen average of analyst estimates.

“At this moment, I don’t see a sign of the component shortages recovering,” Nintendo President Shuntaro Furukawa said after the earnings release. The company will not be able to produce enough Switch units to satisfy demand and may need to revise its outlook again if the situation changes drastically, he added.

Nintendo has been struggling to boost output of its new OLED Switch as shortages of chips and other components hamper production of everything from automobiles to smartphones. Achieving the new hardware sales goal will depend on how heavily Nintendo prioritizes its recently launched model, Ace Research Institute analyst Hideki Yasuda said ahead of the earnings release. The original Switch and more affordable Switch Lite have seen their sales dwindle all year and the pricier new variant is what Nintendo will rely on to keep sales up heading into 2022.

“We have no plans to focus our supply resources only on the OLED model,” Furukawa said. “The three models each cater to different needs of customers. Sales of the original Switch as well as the Lite model remain firm even after the OLED model’s release.”

Nintendo shares have dropped 25% this year, while the benchmark Nikkei 225 has gained 8.5%.

The best-selling console in the U.S. in September was Sony Group Corp.’s PlayStation 5, ending the Switch’s 33 consecutive months at the top of that list, according to NPD.

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