San Francisco Frontiers - Switch 2 sales boost Nintendo profits, but chip shortage looms

But a global memory chip shortage, created by massive demand for artificial intelligence hardware, threatens to push up manufacturing costs for the "Super Mario" maker.

The Switch 2 became the world's fastest-selling games console after launching to a fan frenzy last summer.

It is the successor to the original Switch, which soared in popularity during the pandemic when games such as "Animal Crossing" struck a chord during long lockdowns.

Both are hybrid devices that can be connected to a TV or used on-the-go.

"Nintendo Switch 2 got off to a good start following its launch on June 5 and unit sales continued to grow through the holiday season," Nintendo said Tuesday.

In April-December, net profit jumped 51.3 percent year-on-year to 358.9 billion yen ($2.3 billion), it said, and revenue nearly doubled on-year to 1.9 trillion yen.

It sold nearly 17.4 million Switch 2 devices during the nine-month period.

But the Kyoto-based company kept its annual unit sales target for the Switch 2 steady at 19 million, and also held its full-year net profit forecast of 350 billion yen.

- Chip crunch -

Soaring prices for memory microchips -- used in games consoles as well as phones, laptops and other electronics -- is set to be a headwind.

Their prices have ballooned as chipmakers focus on meeting the huge demands of fast-growing numbers of AI data centres.

"Nintendo and other console manufacturers are publicly keeping quiet about the impact of the shortage," gaming industry consultant Serkan Toto told AFP.

But "users can forget the past when consoles always became cheaper in tandem with component costs falling over time", with price hikes potentially on the cards this year, he said.

Krysta Yang of the Nintendo-focused Kit and Krysta Podcast told AFP that a Switch 2 price increase "is not out of the question" but that Nintendo "would likely exhaust all other options" beforehand.

A lack of heavy-hitting first-party new games for the Switch 2 in coming months also risks hindering growth, although third-party titles such as "Resident Evil Requiem" should help fill the gap, she said.

Nintendo said Tuesday it planned to release "Mario Tennis Fever" this month and "Pokemon Pokopia" in March.

While the company is diversifying into hit movies and theme parks, consoles remain at the core of its business.

The Switch 1 has now sold 155.37 million units -- overtaking the Nintendo DS to be its best-selling hardware of all time.

Yang and Toto dismissed fears that AI-generated games could soon spell trouble for established console makers like Nintendo.

Several game-related stocks dropped Friday after Google released its Genie 3.0 AI model, which can create playable worlds with simple prompts.

But "if you dig below the surface level of what Google's new AI model can actually do, it's clear that this isn't a real 'threat' to the industry", Yang said.

"Games require so much more than simple interaction and flashy graphics," Toto added.

"At least right now, AI cannot tell meaningful stories, create strong characters, or come up with fun gameplay mechanics," he said.

J.Scott--SFF