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Nintendo expects 29% less profit after Animal Crossing boom

Japanese gaming giant predicts slower Switch sales following record breaking year

Nintendo expects sales from its popular Switch gaming console to slow. (Photo by Ken Kobayashi)

TOKYO -- Nintendo is forecasting a 29% drop in net profit for the year ending March 2022 as the pandemic-fueled gaming boom eases, with its popular Switch gaming console expected to face a slowdown in sales.

The Kyoto-based gaming company announced on Thursday that it anticipates annual net profit to decline to 340 billion yen ($3.1 billion) compared with a year earlier, which saw unprecedented demand for gaming early on in the COVID-19 pandemic and helped Nintendo log a record net profit of 480 billion yen.

Nintendo does not expect to score record profits for a second straight year as hardware and software sales decline.

Annual revenue is expected to fall 9% to 1.6 trillion yen this fiscal year and operating profit to slide 22% to 500 billion yen.

Nintendo is aiming to sell 25.5 million units of its Switch hardware, including its handheld Switch Lite device, which is 11.5% less than a year earlier.

Blockbuster sales from its global hit title Animal Crossing: New Horizons, which has sold over 32 million copies since its release in March 2020, also set the bar high for this year. Nintendo expects total software sales to decline 18% to 190 million copies this fiscal year, .

At an online earnings conference, Nintendo President Shuntaro Furukawa said: "The explosive success of Animal Crossing last year led to unprecedented demand for our hardware."

"We have had to take that temporary impact into account for our outlook this year."

Many analysts had predicted Nintendo would announce lower profits for fiscal 2021, but still expected rosier figures.

According to data from Quick FactSet, the analysts' consensus for annual net profit was 414 billion yen and 575 billion yen for operating profit.

Hideki Yasuda, a senior analyst at Ace Research Institute, said Nintendo's guidance seemed conservative since Nintendo plans to release major software titles, including the latest game from the Pokemon series.

"Current demand for the Switch console is still strong and I believe there is potential to sell more this year," he said.

Furukawa said the company will strive to better sales targets but said the global chip crunch has caused supply uncertainties.

"Demand for the Switch has continued to exceed expectations this year, but the global chip shortage means we are not in a position to produce all the products we want," he said. "We are making every effort to produce as much as possible, but there is more uncertainty surrounding our production plan than in previous years."

Nintendo's forecast assumes it will be able to procure all the parts and materials needed for manufacturing. Furukawa said Nintendo will take appropriate measures if the situation changes.

Last week Sony also announced that it expects annual profits to drop as customers emerge from pandemic-induced isolation.

Chief Financial Officer Hiroki Totoki said Sony has been unable to "keep up with strong demand for the PlayStation 5 hardware" because of "continued constraints in chip supplies."

Meanwhile, Nintendo reported record profits for the year up to March. Net profit jumped 86% to 480 billion yen, the highest ever for the company, while revenue rose 34% to 1.76 trillion yen. Operating profit climbed 82% to 641 billion yen.

The company did well out of people stuck at home during the pandemic, selling over 28 million units of its Switch hardware, a 37% jump year on year. Total sales for the Switch console, released in 2017, have reached over 84 million units.

A subscription gaming service, Nintendo Switch Online, also gained popularity and had accumulated 26 million members by September. Revenue from digital downloads also helped boost profit margins. Digital sales increased 69% to 344 billion yen and accounted for over 40% of Nintendo's overall software sales for the fiscal year.

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