TOKYO -- Nintendo seems to have found a savior for its console business. So popular is its new Switch that the gaming company cannot catch up with demand for the portable-meets-home console. Ever since the Switch was launched around the world in March, stores have been unable to keep the things on their shelves.
The gotta-have-it console proved to be a boon to Nintendo's first quarter earnings, announced on Wednesday. Operating profit for the April-June period surged to 16.21 billion yen ($144.93 million) from a 5.13 billion yen loss a year earlier. For that, Nintendo can thank sales of 1.97 million Switches during the three months.
Revenue was 154.07 billion yen, up 148.6%, leading to a final profit of 21.26 billion yen, compared to a 24.53 billion yen loss a year earlier.
Including those from March, Switch sales reached 4.7 million units.
But while the Kyoto-based developer may be smiling about its latest results, it is experiencing a headache on another front. It has been nearly five months since the Switch made its debut, and still Nintendo has been unable to catch up to demand.
As a result, it could be leaving money on the table.
Major electronics retailers in Japan have been managing the shortage by handing out raffle tickets to potential buyers.
"My husband wanted one so badly that he made me line up with him two weekends in a row," said a 28-year-old accounting consultant in Tokyo. "We even brought our 3-year-old daughter [to increase our odds of winning one]."
The Switch can be played at home or on the go.
Similar stories are being told across Japan, with Switch consoles selling out within a few hours of arriving at retailers. On a recent public holiday in Japan, thousands of fans braved Tokyo's heat and humidity to line up for a chance to get one of 250 consoles shipped to the Yodobashi Camera outlet in the Akihabara district.
Fans are so desperate for a Switch that scammers were found using a popular flea market app to play an empty box trick. Their postings make it look as though a buyer can expect a console and multiple game titles for slightly above the Switch's suggested retail price of 29,980 yen, excluding taxes. The listings actually mentioned "box only," but the words could have been easily missed in the long description.
Scammers are also taking to Twitter, saying they'll trade Switch consoles for online gift cards. A middle school student said he lost almost a year's worth of allowances by falling for this ploy. He tweeted about being victimized, and a soft-hearted tweep responded by offering to give the kid a secondhand Switch.
But even this act of kindness opened a can of worms. The student ended up receiving a brand new console, which the good Samaritan later revealed had been bought from an online auction site. Switch consoles are trading for at least 10,000 yen above suggested retail price on these sites. The story's hero ended up taking some online flak.
In Japan, resale markets have a bad name. Not only are scalpers looked down on for cornering the market for hot items, their customers are blamed for letting these markets flourish.
Put it down to Nintendo's failure to meet demand. In late June, the company issued an apology and a promise to ramp up production. "We are aware that shortages are ongoing globally. We are doing our best" to deliver consoles, a Nintendo spokesman said.
Part of the attraction is the hot new titles that are coming out for the Switch, which can function as a home console or a handset. "The Legend of Zelda: Breath of the Wild," an open-world role-playing game; "Mario Kart 8 Deluxe," a racing game; and more recently "Splatoon 2," a third-person shooter, have increased the clamor.
Nintendo's Switch already has a library of blockbuster titles, like "Mario Kart 8 Deluxe." © Reuters
All the hoopla has boosted investor confidence, and Nintendo's market capitalization in mid-June surpassed 5 trillion yen for the first time in eight years and five months.
Nintendo has said it expects to sell 10 million Switches during the current fiscal year. On Wednesday, the company kept that target unchanged.
Meeting the target would put Switch in the same realm as Nintendo's previous success, the Wii, which sold over 100 million units to become the company's most successful home console.
For Nintendo, the Switch wave is an opportunity it cannot miss after its flop with the Wii U -- a console that was released in 2012 and sold a meager 13.56 million units. The console market is also more competitive than ever before, with the Sony PlayStation and Microsoft Xbox lines building strong market share.
Now buoyed by the Switch, Nintendo is targeting a consolidated operating profit of 65 billion yen for the current fiscal year, a 120% increase over the year earlier figure. Consolidated revenue is expected to rise 53% to 750 billion yen, which would return the company to revenue growth for the first time in nine years.
To meet the target, Nintendo told suppliers and assemblers to increase Switch production to at least 18 million units in the year ending March 2018, the Financial times reported in late May. This goal, the FT said, reflects fears of "customer tantrums."
Masahiro Ono, an analyst at Morgan Stanley MUFG Securities, said the supply problems have not led to immediate lost sales opportunities, largely thanks to the company's strategy of offering major blockbuster titles early on.
"Nintendo fans are waiting to get their hands on the major titles," he said. "Even if the console is shipped late, these people are most certainly buying them."
Still, Ono cautioned that Nintendo will have a hard time meeting demand. Supplies of Switch's key components, such as flash memory chips, he said, "remain quite tight."
Nintendo shares ended Wednesday trading up 1.33% at 35,770 yen. The earnings announcement came after trading closed.
http://asia.nikkei.com/Japan-Update/Nintendo-makes-investors-rich-little-boys-cry?page=1
