I still could not understand why investors were freaking out and had to do some investigation. The exact reason for the freakout has to do with margin on hardware. So to be specific, the margin Nintendo was getting from the original Switch was sky high for obvious reasons. This Switch 2 margin is already strained from rising prices for componets like ram and things like tariffs. In November, sales were far lower than anyone expected. Nintendo responded by doing a $50 price cut going into December which is their best month. Sales were pretty good, but the margins were even lower due to the price cut. So, revenue did not meet expectations and neither did profit. By the way the profit was actually just shy of $1 Billion... (Imagine making a billion and being called a failure at the same time... crazy)
This shows us just how screwed the whole system is. Nintendo is punished for not selling enough units at a higher price and ALSO, they are punished for selling more at a cheaper price. There are two ways out of this. A) Ninendo raises prices to mitagate loses to margin. As a consumer I think this is a terrible solution. B) Figure out how to get your hardware costs down.
If Nintendo is able to find a way to get its costs down this will drive its value back up. They are down a whole third in the last 6 months. I imagine that something exactly like this could effect the next PlayStaion. I suspect they will probably increase the price of their subscription to finance the lower (and potentially lower than zero) hardware profits. Microsoft is looking at all this and there are like 'f this'. They will solve the problem simply by passing all the costs to the consumer.
But this also explains why there will be no Switch price cut. Everything make more sense now.
Does anyone have any ideas on how they could get their margins up without beating up cunsumers?
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