Nintendo Doubles Profit Outlook On Strong Switch Console Sales

OSAKA (Reuters) – Japanese videogames maker Nintendo Co Ltd (7974.T), already expecting its highest earnings in seven years, almost doubled its full-year operating profit forecast on Monday as supply shortages for its new Switch games console began to ease.

Demand for the hybrid home-portable Switch has led to a near-doubling of Nintendo’s stock price to nine-year highs since the device’s March launch. Sales have exceeded the company’s initial estimate, outstripping those of predecessor Wii U, and leaving suppliers scrambling for parts.

“We’ve boosted Switch production to meet strong demand as it was difficult for customers to buy the consoles at retail stores,” Nintendo President Tatsumi Kimishima said at an earnings briefing, adding the firm misjudged demand.

The Switch’s early success has fueled hopes for strong earnings in the coming years, as solid demand for new consoles is widely regarded as a prelude to strong sales of high-margin game software over several years.

However competition is set to intensify into the year-end holiday shopping season as Microsoft Corp (MSFT.O) releases its high-powered, high-resolution Xbox One X console on Nov. 7.

“The true power of the Switch would be tested during the upcoming holiday season,” Kimishima said.

NEW EXPERIENCES

Nintendo now expects profit of 120 billion yen ($1.06 billion) for the year ending March versus 65 billion yen estimated three months ago, boosted by Switch sales as well as a weaker yen against the euro. The new outlook is still below a Thomson Reuters Starmine SmartEstimate of 133.60 billion yen drawn from the projections of 22 analysts.

Nintendo also raised its year-end Switch sales forecast to 14 million consoles from 10 million. The new annual target would alone exceed lifetime sales of 13.56 million consoles for the Wii U, which was on the market for about five years.

The preceding blockbuster Wii, which debuted in late 2006, sold about 20 million in its first year and went on to sell over 100 million units.

Nintendo sold about 2.9 million Switch consoles in the three months through September, bringing the cumulative total to 7.63 million units.

Kimishima also said Nintendo is preparing game software that provides Switch users with new “experiences”. The software has the potential to attract new users and boost sales, he said, declining to elaborate.

RELIANCE

The results come at a time when Nintendo is trying to reduce reliance on consoles and stabilize fluctuating profit by moving into new areas such as smartphone gaming and theme parks with its roster of popular characters.

But Kimishima reiterated the main purpose of branching out is to increase encounters with non-gamers to stimulate console sales.

Nintendo also said for the three months through September, operating profit reached 23.75 billion yen, reversing a year-earlier loss of 812 million yen.

Its share price ended Monday 0.26 percent lower ahead of the earnings release, compared with a 0.01 percent rise in the Nikkei benchmark index .N225.