Nintendo Boosts Annual Profit Forecast Despite Slowing Gaming Boom
Nintendo Co. improved its full-year net profit forecast on Thursday despite weaker performance in the first half of the year as the global gaming boom fueled by the coronavirus lockdown slowed.
The Japanese giant said it expects stronger software sales for the year through March 2022, thanks to healthy sales in the first half of the year and ahead of releases that include three titles from the popular Pokemon franchise.
But it lowered its annual sales target for its Switch console, as a global chip shortage continues to affect many industries, including video games.
“We have reduced deliveries planned for the second half of the year after reviewing our production plan, in the face of the impact of a global supply and demand crisis for semiconductors and other parts,” said Nintendo in a press release.
Japanese media reported this week that annual Switch production is expected to fall about 20% from its target for the current fiscal year due to the chip tightening.
Despite the headwinds, the Kyoto-based company forecast a net profit of 350 billion yen ($ 3.1 billion) for the year through March 2022, up from an earlier estimate of 340 billion yen.
And it raised its software sales target to 200 million units, “given first-half sales results.”
“Software sales are expected to increase in the second half of the year thanks to planned new releases of the Pokemon series, which will increase Nintendo’s overall profit,” said Hideki Yasuda, an analyst at the Ace Research Institute in Tokyo.
Nintendo will release Pokemon Brilliant Diamond and Pokemon Shining Pearl in November, with plans to launch Pokemon Legends: Arceus in January.
However, “there are concerns that hardware will be in short supply” in the coming months due to power outages in China and the semiconductor shortage, Yasuda said.
Nintendo has lowered its annual Switch sales target to 24 million units for the current fiscal year, from the 25.5 million forecast earlier.
The company posted its highest annual profit on record in 2020-2021, boosted by the skyrocketing popularity of the Switch and the family game Animal Crossing as demand for indoor entertainment skyrocketed during the height of the pandemic.
But as everyday life picks up in many countries, the luck of game makers has slackened.
For the six months ending September, Nintendo’s net profit fell 19.4% to 171.8 billion yen, still well up from 62 billion yen from April to September 2019.
“Profit levels were unusually high last year,” Yasuo Imanaka, chief analyst at Rakuten Securities, said before the results were released.
“Against the backdrop of the lockdown demand, Animal Crossing and Mario Kart have been instrumental in generating profits. This makes it difficult for Nintendo to surpass last year’s results.
Imanaka said the Switch, which can be a handheld or used with a TV, was “facing a pivotal year” after its release in 2017. Sales of new Nintendo consoles previously tended to peak during the decade. third year before decreasing.
The portable-only Switch Lite model was released in 2019 and in October of this year Nintendo released the Switch OLED, which had an improved display and memory.
The new version appears to be off to a good start, even though it has a higher suggested retail price than the original, analysts say.
However, Matthew Kanterman, senior equity researcher at Bloomberg Intelligence, gave a less optimistic prediction for Nintendo’s annual results.
“The OLED switch is great hardware, but it’s not a huge upgrade,” he said before the results.
“It’s not going to stimulate demand. Without a big software release from the proprietary studios, revenues are likely to drop quite significantly this year. “
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