April 27, 2017 / 7:10 AM / 4 months ago

Nintendo sees Switch console doubling profit, ending 8-year sales slide

A Nintendo Switch game console is displayed at an electronics store in Tokyo, Japan March 3, 2017.Toru Hanai

OSAKA (Reuters) - Nintendo Co Ltd (7974.T) expects its new Switch console to more than double annual operating profit and end the eight-year sales decline that dogged its previous offering just as players were turning to smartphone gaming.

The Japanese firm entered the mobile gaming market last year to the relief of shareholders fretting about diving console sales. Now the early success of the Switch has fueled hope of a long-term earnings recovery and sent the firm's share price about 20 percent higher since the console's March debut.

"We are hoping to change the tide of our business with the Switch," Nintendo President Tatsumi Kimishima said at a news briefing on Thursday.

Nintendo estimated profit to grow 2.2-fold to 65 billion yen ($584 million) in the year through March 2018, with sales jumping 53.3 percent. That was still far below the 104 billion yen average of 23 analyst estimates surveyed by Thomson Reuters I/B/E/S.

Asked if the outlook was too low, Kimishima said the firm was stepping up marketing costs for the Switch.

RECORD PROFIT

Nintendo aims to sell 10 million of the hybrid home console and handheld device this financial year, on top of a higher-than-expected 2.7 million sold in its debut month.

"If the 10 million target is achieved ... that means the sales momentum would be close to the Wii," Nintendo's most successful console, Kimishima said.

The Wii, launched in November 2006, sold about 20 million units in its first year and exceeded 100 million over its life. The last time Nintendo's sales grew was in the year ended March 2009, when Wii demand drove profit to a record 555 billion yen.

Profit from a new console typically peaks a couple of years after launch when there is a wide choice of game titles.

Kimishima also said Nintendo's first own-brand smartphone game, Super Mario Run, has neared 150 million free downloads, but the number of users paying the one-off fee to unlock most of its content is below the target 10 percent.

GAME TITLES

One reason behind the Switch's strong start is that unlike its predecessor Wii U, the console has a long list of game titles from independent studios because Nintendo made the Switch compatible with publicly available game development platforms from the start, said Hirokazu Hamamura, a director at Kadokawa Dwango Corp (9468.T), which publishes games magazines.

Some analysts, however, are skeptical about the sustainability of the sales momentum.

CLSA analyst Jay Defibaugh in a recent report said, unlike the Wii, the early popularity was not being driven by games demonstrating defining characteristics, such as a controller with motion-detection camera, but by games that could equally appear on Sony Corp's (6758.T) PlayStation or Microsoft Corp's (MSFT.O) Xbox.

"(This) leaves Nintendo vulnerable to the structural shortage of third-party titles, deficient online offering, and weaker graphics," he said.

Reporting by Makiko Yamazaki; Editing by Christopher Cushing

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