Nintendo is having a great time. Since the release of Switch the company seems to have regained a place among the big names in video games, after the WiiU misstep. The data published in the latest annual report seem to confirm this trend: in 2020 Nintendo recorded record growth.
However, there is a huge difference between the Kyoto company and its main competitors. PlayStation and Xbox have colossal multinationals behind them, which can also afford to produce consoles at a loss. Nintendo instead depends entirely on its gaming sector. And today that sector has only one name: Switch.
Until four years ago Nintendo traveled on two parallel tracks, that of fixed and portable consoles. From Game Boy to 3DS, from Nintendo 64 to Wii, the two worlds supported each other.
The two traditions of Nintendo have found an almost perfect synthesis in the Switch. However, if one party, this merger has led all possible customers to a single product, on the other has inextricably linked the fate of the company to that of the console.
Up to now, however, the path of Switch has been unstoppable. The data for fiscal 2020 (which ended in March 2021) confirmed the astonishing success of the hybrid console. Four years after its release and more than a year after the last version, that lite, Nintendo can be said to be more than satisfied.
Only in the last 12 months Switch sales increased by 52,7% compared to the previous year. An already significant growth, which becomes impressive when it is contextualized. Switch has had to fight against competition from PlayStation 5 and Xbox Series X, two technologically superior consoles.
The software sector has certainly helped in this enterprise. The release of Animal Crossing, as well as representing a global commercial success, helped reinvigorate Switch sales, even as the market was rocked by the release of the Next Gen.
Animal Crossing New Horizons with its nearly 21 million units dragged the sales of the console into the third quarter. Nintendo has sold eleven million Switches in these three months alone. Without this peak, the increase in console sales would hardly have reached 37% which he then obtained.
It is easy to think that with these results Nintendo does not have any problems whatsoever. A slightly more in-depth analysis, however, reveals a detail. The Kyoto company is based on Switch. Not only do console sales represent a significant portion of turnover, but it is clear that the software sector also benefits from the creation of a proprietary ecosystem.
Switch is expected to get a hardware update soon, but news about the new console is in short supply. The semiconductor crisis, also mentioned in the report, has already impacted production and could stifle Switch Pro in the bud.
In this context we can see the difference between Nintendo and the competition: this problem has also arisen for Sony and Microsoft with the production of the Next Gen consoles, but the response of the two companies was to buy components at exorbitant prices and produce at a loss.
Nintendo can't afford it. It does not have a multi-billion dollar conglomerate behind it that can support it. Switch must necessarily bring a net profit. We would also have to consider the spiral that an underproduction of consoles would trigger. Fewer Switches means fewer possible buyers for first-party titles, which are the soul of the Nintendo software sector.
The situation can get complex very easily, but the data also shows a way out, also suggested by Bloomberg. Nintendo has many extremely profitable brands in its hands, which it has not been able to fully exploit. The mobile sector in particular is extremely underdeveloped.
As we have seen in this analysis, mobile video games are the future of gaming. The slice of the market that more than all the others has been able to grow in recent years is paradoxically the least exploited by Nintendo. Revenues amount to only 57 billion yen against Switch's 1.700.
Investments in that sector could unhook the fate of the company from that of its flagship console. Software, mobile and services they will have to play a much more central role than they do today in Nintendo's economy.
Far be it from me to predict the fall of Nintendo, the company is healthy, but it also shows some cracks. The Switch bet has been won, but the future of the company is still to be written.