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Japan-Update

Switch powers up Nintendo's full-year outlook

Second-half view clouded only by trouble keeping up with ravenous demand

Nintendo is focused on ensuring stores have enough Switch consoles during the year-end shopping season, President Tatsumi Kimishima says.

OSAKA -- Nintendo upgraded its full-year profit projection by 55 billion yen ($486 million) Monday, putting up an ambitious sales outlook for the hard-to-find Nintendo Switch console that will see it scramble to keep factories supplied.

Once beaten down by the rise of mobile games, the Kyoto-based company now expects to quadruple its group operating profit to 120 billion yen for the financial year ending March 2018. It sees sales reaching 960 billion yen, up 210 billion yen from the previous guidance.

Net profit is forecast to sink 17% to 85 billion yen, as last fiscal year's result was inflated by the one-time capital gain from selling a majority stake in the Seattle Mariners, a U.S. professional baseball team.

But Nintendo's core business is still going strong. Operating profit for the half ended September came in at 39.9 billion yen in first-half operating profit, a turnaround from the 5.9 billion yen operating loss a year earlier, the company reported Monday. First-half sales swelled 170% to 374 billion yen thanks to the success of the Switch.

Bottleneck

Nintendo sold 4.89 million units of the device in the six months to September. The company raised its full-year sales forecast to 14 million units, up from the earlier outlook of 10 million. In other words, it will have to squeeze nearly a year's worth of turnover into six months.  

But stores are struggling to stock the Switch for eager customers. Most online retailers are carrying the console regularly for about 10,000 yen more than the suggested retail price of 29,980 yen.

The single biggest reason Nintendo has been unable to produce enough Switches is the shortage of electronic components. Amid outsized demand from makers of smartphones and electrified vehicles, the company is seeing "intermittent shortages of various parts," even transistors and other commodity-grade components, said a Nintendo procurement executive. Nintendo purchasing managers are going to emerging markets in Southeast Asia and other places in search of components, but it is unclear where the company has secured the needed parts.

In preparation for the end-of-the-year shopping season, Nintendo has apparently raised monthly production of the Switch to roughly 2 million units in October, about twice as much as during the summer. "We want to make sure stores have our products in stock," Nintendo President Tatsumi Kimishima said Monday.

Unconventional gameplay

Before launching the Switch in March, Nintendo found itself losing gaming enthusiasts to Sony's PlayStation 4, which boasts lifelike graphics, and smartphones, which can be played anywhere. With the Switch, Nintendo dug itself out of the hole by not only winning back hardcore gamers, but also defending its core family demographic.

Not only can the handheld console be brought outdoors, the removable controllers allow two people to play. Motion sensors in the controllers direct in-game movements.

"We've given customers a different way to play," Kimishima said.

Nintendo attempted that feat with the Wii U, whose primary controller came with an embedded touchscreen. But the lack of games for that device relegated lifetime sales to 13.56 million units before Nintendo ended production.

The Switch, on the other hand, has new titles released every one to two months for popular series. Just last Friday, Nintendo released "Super Mario Odyssey" for the console.

The company still faces competition in the gaming arena from the advent of virtual reality. Kimishima remains somewhat coy on the strategy Nintendo will adopt for the Switch for the next fiscal year and beyond. Gamers can expect to encounter "new experiences," he said.

(Nikkei)

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