Nintendo's "Next Switch": Three scenarios come to mind due to concerns about peaking out
Nintendo's "Nintendo Switch," which has entered its sixth year of release, is at a critical moment. Due to the shortage of semiconductors and the turmoil in logistics, production and delivery have been struggling, and there are increasing voices saying that demand has "peaked off" (home appliance mass sales executives). Since it is a historic hit product, strategies such as next-generation machines are particularly difficult. Three scenarios come to mind in "Next Switch".
Nintendo will announce its consolidated financial results for the fiscal year ending March 2022 on the afternoon of the 10th. It seems that the number of switches sold was around 23 million units, a decrease of 20% from the previous term. Due to the shortage of semiconductors, we have not been able to supply a sufficient amount to the market. There is also a large reactionary decline from the previous period (28.83 million units) when there was a big hit with the demand for nesting and the popular software "Animal Crossing: New Clothes Forest".
Switch sales for the fiscal year ending March 2011 are expected to be around 20 million units. Since it has a production base in China, there are concerns about the impact of the city blockdown (lockdown) in Shanghai. Attention will also be focused on the net income plan for the fiscal year ending March 2011, which will be announced on the 10th.
The switch has sold 103.54 million units in total (as of the end of December 2009), making it an exceptional hit. The "Wii" released in 2006 also sold a total of 101.63 million units, but stalled in the fifth year. As for software sales, the cumulative sales of "Family Computers" released in 1983 are about 500 million, while the number of switches is about 800 million.
What is the next move for such a switch? There are three scenarios that market players envision.
The first is to launch an improved version of the current model within a year or two. You can extend the life of the switch and continue to collect profits by selling software.
The bottleneck is the lack of semiconductors. Hideki Yasuda, a senior analyst at Toyo Securities, points out that "the production of the current model alone is difficult, and even if an improved version is added, there is a concern that the number of units shipped at the time of launch will be insufficient." In the first place, the current model has a high degree of perfection, and it is difficult to bring out a new taste. In October 2021, we just launched an improved version that uses OLED for the screen.
The second scenario is the introduction of next-generation consoles that sell high-definition video compatible with switches. It has the advantage of being able to take over the users of the switch while creating a fresh taste.
The concern is that "software for next-generation consoles will not sell" (domestic securities analyst). Some people hesitate to purchase software for next-generation consoles because the capacity of the recording medium installed in the hardware is filled with the software of the switch that has already been purchased. Software makers may also prioritize switch software development.
Masahiro Ono, an analyst at Morgan Stanley MUFG Securities, sees the potential for both improved and next-generation consoles. Even in the case of next-generation consoles, the software will be compatible, and "I hope to maintain and expand the number of annual users of nearly 100 million people."
The third is the scenario of launching a completely new next-generation machine. Mr. Yasuda of Toyo Securities says, "If hardware is attractive, software will sell naturally."
However, there is a risk that attractive software will not be available at the time of release. If you get up and running, not only users but also software makers will be interested in hardware made by other companies. Manufacturers who have continued to develop software for switches may question Nintendo's decision.
It is also difficult to determine when to launch next-generation consoles. If it is extended until three to four years later, the momentum of the switch will slow down in the meantime, and it may create a valley of business performance. If the timing coincides with the next-generation model of Sony Group's "PlayStation 5" (released in 20), there is a risk of diversifying demand.
Nintendo's performance has been influenced by the ups and downs of hardware in the past. In FY03 / 09, when Wii was a big hit, it earned 279 billion yen in consolidated net income. On the other hand, in the fiscal year ended March 31, 2014, when the Wii U, whose cumulative sales were only 13.56 million units, was the mainstay, it had a deficit of 23.2 billion yen.
Nintendo has an unwritten rule that "entertainment is valuable because it is different from others." "As long as Nintendo is Nintendo, we will continue to put out challenging hardware," said Kenji Fukuyama, an analyst at UBS Securities. He also points out that "the next Switch will not necessarily be a success."
The switch was developed by former president Satoru Iwata, who died suddenly in 2015. "Up until now, I've been running on the rails laid by Mr. Iwata. The next hardware to be released is the sense of President Shuntaro Furukawa," said Mr. Yasuda of Toyo Securities. Can you clear the difficult situation? President Furukawa will also reach a critical moment.
