After a gloomy forecast, no-one knows what’s next for the Nintendo Switch
Nintendo recently put out a very cautious prediction for its future sales, meekly suggesting that it will only ship 19 million Switch units in the next financial year. That’s 2 million less than the year before, which has got some analysts predicting hard times for the gaming giant – but not everyone agrees that Nintendo’s future is doomed.
After the earnings forecast was published, Global Data said that the company would struggle to escape its Covid-19 woes, pointing towards delays in software development and console production.
Rupantar Guha, a senior analyst at the company, even went as far as to say that the conservative prediction of sales “reflects the company’s inability to predict with any degree of confidence when production will be back on track.”
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But some analysts don’t think the figures indicate an incoming disaster for the company.
Commenting on the forecast, Lewis Ward, research director of gaming, esports and VR/AR at IDC, said: “I think they don’t want to be too rosy in their forecasts given all the uncertainty out there.
“If there’s a huge second wave of Covid-19 infections in the second half of this year then Nintendo’s cautious approach will prove warranted because that could affect both shipments and potentially demand due to recessionary effects.”
And while Nintendo’s prediction might seem measly in light of the company’s sales, there’s a logic behind keeping those numbers small.
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“Nintendo very rarely misses its shipment target for the upcoming fiscal year,” says Ward. “If you look back at their initial guidance for the fiscal that just ended, the target was 18 million Switches shipped. Obviously, they bested that by roughly 3 million.
“My point is that I expect Nintendo’s supply chain to run into snags but that these will mostly be overcome and for Nintendo to at least hit 19 million Switches shipped by the end of the current fiscal year.”
Chirag Upadhyay, a hardware analyst at Strategy Analytics, also sees solid reasoning in the meek forecast: “The financial market is more likely to punish Nintendo if they underperform than if they over-deliver.”
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But Upadhyay also speculates that unusually low stock levels cause some of the company’s current woes.
Anyone who’s trying to buy a Switch right now will tell you that they’re nearly impossible to track down, which is due to the manufacturing difficulties faced by all console companies and the sudden boom in popularity for the Switch. But stock levels might be low for a couple of other reasons, too.
“After the success of the Switch Lite, Nintendo reduced the inventory for the Switch console in Q4 2019,” explains Upadhyay.
“Nintendo also didn’t want to take too much risk with handheld consoles as they have relatively short life cycles and are significantly impacted by consumers’ preferences as well as seasonality…Nintendo has learned valuable lessons from Wii U failure and since then has been maintaining a low hardware inventory for all consoles.”
This is why you can’t get a Switch right now even if you’re hitting refresh on Argos every five seconds.
But for Nintendo, it’s better to have this problem than the opposite issue. “Sony and Microsoft hardware demand is deficient despite a significant price drop on their main consoles,” says Upadhyay.
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“Lower inventory and a slow manufacturing process could affect Nintendo’s business more than others. However, pandemic restrictions by governments across the world have caused difficulties for all vendors. I believe Nintendo will be in a better place when things start to normalise.”
Amidst all this talk of Switch sales though, there’s one key Nintendo element that we’re overlooking here: games.
“The Covid-19 pandemic has had a negative impact on hardware manufacturing and thus sales of the Switch, however software sales are doing quite well,” says Michael Goodman from Strategy Analytics.
“With an installed base of 52.7 million units, Switch software sales should continue to be robust. And while it is not an ideal scenario, gains on the software side will help to offset losses on hardware.”
So while Nintendo’s forecast might look a little gloomy, not everyone agrees that the company’s about to be thrown into turbulent waters.