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Zkuq on 11 June 2025
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RolStoppable said:
Zkuq said:

Yes. I'm sure there is a profitability metric that accounts for inflation, and my guess is that Switch 2 is significantly more profitable for Nintendo than the first Switch by that metric. If I recall correctly, the launch price of Switch 2 is higher than that of the first Switch, even when accounting for inflation. That's probably because of extra power, higher profits, or both, and until there's data to support another view, my guess is that there's a significant amount of higher profits there. Of course it's just a guess based on my hunch of the trends of luxury electronics, where prices just keep increasing despite past trends of decreasing prices. I strongly suspect that Nintendo is opportunistically following this trend. I'd love to research this more, but ultimately I don't care enough. I might get a Switch 2 once I get my backlog to a point where it makes sense, but it doesn't mean I'm happy about its price.

This is only a matter of minutes. Fiscal report for the year ending March 2018, Switch's first full year:

https://www.nintendo.co.jp/ir/pdf/2018/180426e.pdf

Nintendo as a whole, figures in millions of yen. Revenue: 1,055,682. Operating profit: 177,557. Profit ratio of ~17%. Switch hardware: 15.05m. Switch software: 63.51m. 3DS hardware: 6.40m. 3DS software: 35.64m.

Forecast for the fiscal year ending March 2026, Switch 2's first year:

https://www.nintendo.co.jp/ir/pdf/2025/250508e.pdf

Revenue: 1,900,000. Operating profit: 320,000. Profit ratio of ~17%. Switch 2 hardware: 15.00m. Switch 2 software: 45.00m. Switch 1 hardware: 4.50m. Switch 1 software: 105.00m.

In both transitional years there's a similar amount of total hardware being sold, but for the current fiscal year we have much higher projected software shipments (150m) than a generation ago (~100m). Software is Nintendo's biggest driver for profits, but despite more software expected to be sold, the profit ratio is projected to be the same as a generation ago. What does favor the previous gen is that Switch 1's initial marketing blitz fell into the fiscal year ending March 2017. When you factor this in, we end up with similar profits in both generations. Although... a gen ago Nintendo Switch Online had yet to become a paid subscription service while this gen inherits a lot of paid subscribers already.

Of course, the disclaimer here is that the current generation is using projections, so actual results may differ. But at this point in time there's no reason to believe that Nintendo's Switch 2 business runs on higher profit margins than Switch 1. Therefore inflation and more processing power are the most logical reasons for Switch 2's hardware price being notably higher than Switch 1's. All things considered, Nintendo is actually foregoing a part of their profits by giving Mario Kart World away so cheap, suggesting that the priority this fiscal year is building a big installed base for Switch 2 fast.

Thank you, this was a very helpful breakdown! I stand corrected, not entirely to my surprise. Obviously even this doesn't make me happy about the price, but at least it doesn't seem like greed is the issue. Of course there's still the question of how much these turbulent times affect Nintendo's projections, but with all the uncertainly, it's probably difficult to reliably eliminate the effect of all that on the profits. I guess I can reject the idea of Switch 2 being overpriced.