Nintendo Teases Long-Awaited Switch Successor as Profit Slides

07/05/2024

Nintendo products at a Best Buy store in Montreal, Quebec, Canada.

(Bloomberg) — Nintendo Co. said it will announce a successor to its seven-year-old Switch games console, after forecasting a bigger-than-expected profit decline for the current fiscal year.

President Shuntaro Furukawa posted on X to say there will be an announcement on the next hardware platform in the coming year, shortly after his company said it expects operating income to fall 24% to ¥400 billion ($2.6 billion) on a 19% revenue decline in the year to March 2025. Both figures fell well shy of average analyst estimates and underscored the challenge for the company that’s still reliant on aging hardware.

Fans and investors have long awaited word on a succession plan for the 2017 gadget, which has ratcheted up more than 141 million sales over its lifetime. Nintendo has resisted discussing any plans and kept the original console going with marquee game releases. But it lost significant ground to a resurgent Sony Group Corp. with its PlayStation 5 over the past year, and will contest the key holiday season against newer and more powerful machines, including in Microsoft Corp.’s Xbox range.

For the March quarter, Nintendo earned an operating profit of ¥64.5 billion, short of the average analyst estimate of ¥74.7 billion. The company now expects Switch sales of 13.5 million units in the current fiscal year, down from 15.7 million. Its guidance on software sales also points to a decline, from 200 million units to 165 million units.

“Now that this announcement is out in the world, I think Nintendo has no choice but to cut prices or offer attractive hardware and software bundles to get to the 13.5 million Switch units they want to sell this year,” said industry analyst Serkan Toto. “They will get through the Switch’s final year somehow, but I would not expect too many blockbusters until the new hardware arrives.”

Nintendo told suppliers and software partners earlier this year that it was delaying the launch of the next-generation console until March 2025 or later, scrapping an initial plan to release it by this year’s end, Bloomberg News reported. The creator of the Super Mario Bros. games is also likely to hold back major releases of its most popular franchises to help boost initial sales of the next machine.

The Switch’s versatility and family-friendly ethos, developed under the oversight of creator and former Nintendo President Satoru Iwata, have made it one of the company’s most successful pieces of hardware. But the firm’s history offers a cautionary tale: A decade earlier, the Wii U failed to carry on the success of the Wii, another of Nintendo’s biggest hits.

Nintendo has been pushing its Nintendo Switch Online subscription service to entice new customers to buy the device and cultivate a broad user base for the next console. The 134-year-old company is also turning to its nascent motion picture business for new revenue.

After the blockbuster success of The Super Mario Bros. Movie last year, Nintendo is developing a live-action film based on The Legend of Zelda, to be co-produced by game creator Shigeru Miyamoto and Marvel Studios founder Avi Arad and distributed by Sony Pictures Entertainment Inc. The release date is yet to be announced.

–With assistance from Vlad Savov.

(Updates with analyst reaction)

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