Nintendo Boosts Profit and Sales Outlook on Robust Switch Demand

Nintendo’s Switch console is becoming a major pillar of its business. The company almost doubled its annual profit forecast after production of the hybrid console accelerated and customers bought more games than anticipated, according to Bloomberg.

Nintendo ramped up capacity to make more of the Switch, which was in short supply since debuting in March. The company now predicts it will sell 14 million Switch units in the period, up from 10 million. Software title sales will be 50 million, up from 35 million. While analysts were predicting a higher forecast, the increase in production will help to ease supply concerns during the year-end shopping season, when Nintendo typically generates about half of its annual sales.

Nintendo raised its operating profit outlook to 120 billion yen ($1.1 billion) from 65 billion yen for the current fiscal year through March. Revenue is now forecast at 960 billion yen, up from 750 billion yen. The company is betting that the Switch will fuel a new era of growth as more people embrace its dual role as a gaming device that can be used at home or on the go. Achieving the Switch sales target will put Nintendo on track to reach about 16.7 million unit sales in the first 13 months, exceeding total Wii U shipments during the past six years.

Operating profit in the September quarter came in at 23.8 billion yen, based on figures derived from reported first-half results. That topped projections for 19.2 billion yen, the average of estimates compiled by Bloomberg. Revenue was 220 billion yen in the quarter, exceeding estimates for 174.6 billion yen.

Despite increasing its full-year Switch software sales forecast, Nintendo is still being conservative. Current forecasts suggest a software-to-hardware ratio of 3.6, well below the 4.5 attachment rate that Nintendo was able to achieve since April. While some analysts believe there's room to raise the profit forecast even more, Nintendo President Tatsumi Kimishima sought to temper expectations. “These are not easy figures,“ he said.

Another area of focus is a fledgling smartphone business that has the potential to harness valuable in-house content from Zelda to Mario. The unit’s revenue was 8.8 billion yen, down from 9.1 billion yen in the prior quarter. Income attributed primarily to Pokemon Go was 3.1 billion yen, down from 3.3 billion yen in the previous period. The decline occurred despite Pokemon Go developer Niantic introducing new features for the app and holding battling events throughout the world.