Games

How long can Nintendo delay ‘Switch 2’ as Switch hardware sales slow?

SSBU Zelda OLED
Image: Nintendo Life / Zion Grassl

Nintendo’s fiscal 2021/22 report was released today, and while the Switch continues to sell well and software sales look healthy, there are also signs that enthusiasm for the five-year-old system is starting to wane. To be clear, the results paint a far from gloomy prospect for the console and the company, but the numbers show a 20% year-over-year decline in revenue, and the company is forecasting further declines in the coming year.

In real numbers, lifetime Switch sales now total 107.65 million units, of which just over 23 million came last year. That’s a very solid number — and the sell-through (i.e., the number of units actually sold to consumers at retail versus the number shipped to retail stores) of the console over the last fiscal year is post-the-console launch year second place. Digital sales were also up 4.5% from fiscal 2021, with the January-March 22 period recording the second-highest digital sales quarter ever – just behind the previous lucrative Christmas 21 season. It’s certainly not all doom and gloom in Kyoto at the moment.

While the system still has life, there are clear signs that Switch has peaked. Nintendo is forecasting hardware sales of 21 million units in the coming year, and while that’s still 3 million more than Sony is targeting for PS5, the supply shortages for the more powerful console are worse – and Sony’s guidance for fiscal 2022 is well above the 11th figure .5 million PS5s were sold in the last fiscal year. And let’s remember that 18 months after launch, PS5s are still like chicken teeth at retail.

Although Nintendo appears to have struggled to produce hardware in sufficient quantities, demand for the hybrid console, while still healthy given its age, is is Slowdown. There are over 107 million switches out there in the wild, and while that number will continue to grow, the gaming industry is building momentum, and Switch is a very well-known force at this stage.

change games
There’s no shortage of games, that’s for sure (Image: Nintendo Life)

There’s one thing Nintendo really needs to get investor charts back up: an influx of new, properly updated Switch hardware.

Global chip shortages and rising manufacturing costs are no doubt weighing on Nintendo’s profits, and the lower profit margin at Switch OLED is also cited as a factor in the modest 0.6% year-over-year increase in gross profit. Despite the general rosyness, however, negative numbers don’t make for happy investor reading, and Switch OLED, while a welcome shot in the arm, was a stopgap.

There’s one thing Nintendo really needs to get investor charts back up: an influx of new, properly updated Switch hardware.

The long-rumoured Switch “Pro” or Switch 2 (or whatever you want to call the successor to the current model) has been on the tongues of analysts for years. Given the cyclical, rolling nature of the video game hardware cycle and the performance gap between the Switch and the consoles from Microsoft and Sony — not to mention the fact that Nintendo pioneered the semi-staged mid-cycle console upgrade with its handheld systems has – the potential for new SKUs has been discussed since the Switch launched in 2017.

There was little need to keep releasing an updated version while Switches were flying off shelves as fast as Nintendo could make them, despite the opinions of hardcore enthusiasts and analysts. In fact, the massive success of Switch and its evergreen catalog of software from the big three companies has allowed Nintendo to weather the storm of COVID and parts shortages better than it could have done. While we’re not out of the woods just yet, it’s starting to feel like everyone wants a Switch to have an eye, and more eyes than ever will be on what’s next in the pipeline.

In an ideal world, Nintendo would certainly be looking to launch a Switch successor in the next year or so. The current model would continue to sell, but as the numbers ease, the new sharpness is there to make up for the doldrums and boost profits. However, Nintendo faces production issues it can’t control — issues that could delay plans for the next console and problems that could ultimately hamper the company’s momentum. Switch might be a huge cash cow, but milking it completely dry without a ready replacement isn’t a sound business strategy.

Animal Crossing OLED
Evergreen, slow-burn games like Animal Crossing have helped Switch make good progress so far (Image: Nintendo Life)

Requests for the sequel are undoubtedly in place, but with all the potential production roadblocks, knowing when to pull the trigger for the follow-up now is Nintendo’s main problem. Introducing a new console (backwards compatible, of course) alongside Zelda: Breath of the Wild 2 would make a lot of sense given that Spring 2023’s launch date is six years after the original. According to a poll we conducted on the subject, many Nintendo Life readers would hop onto upgraded hardware alongside the new Zelda – it’s the sort of move you’d expect from Nintendo.

Requests for the successor are undoubtedly in place, but knowing when to pull the trigger for the follow-up is now Nintendo’s main problem

Rumors suggest that Microsoft paid to “skip the queue” and get chip priority to make more Xboxes, and while Nintendo isn’t after a Bobs or two, in terms of sheer purchasing power, it can’t compete with Microsoft. With companies lining up for components, Nintendo isn’t the only one having to make the most of the status quo for longer than normal circumstances. Plans to split the shares 10/1 are another indicator that it intends to pull out and make the most of things while the business is still strong.

In fact, lately we’ve even seen analysts make much more sober estimates of when a Switch successor might appear, with dates like “late 2024” now being suggested. By then, the current console would be seven and a half years old – a retiree in modern gaming terms. There’s no doubt that the system is capable of delivering great games the way it is and that’s not about to change, but for an industry and a hardcore fanbase that’s always keeping an eye on The Next Big Thing™ has thrown, the end of 2024 seems like an endless long wait for new Nintendo hardware.

In terms of profit, Nintendo could certainly afford to keep going for another two years with its current offering, perhaps with a Switch Lite OLED as a bonus. However, the perception that the company is at a standstill would be hard to shake — if not for gamers, then certainly for investors. A new Zelda will help, but Holiday 2024 feels far away.

Bloomberg reports that Nintendo President Shuntaro Furukawa “refused to comment when asked during a media briefing when his company might unveil the next iteration of its marquee console,” and we’re inclined to believe it’s an urgent one Question within the walls of Nintendo’s headquarters is also. It’s easy to make an announcement, but producing hardware at scale and meeting consumer demand is a challenge we certainly don’t envy to the folks working on the logistics for Nintendo’s next console launch.

Let us know when you think Nintendo will launch its next console in the poll below.

https://www.nintendolife.com/features/talking-point-as-switch-hardware-sales-slow-how-long-can-nintendo-delay-switch-2 How long can Nintendo delay ‘Switch 2’ as Switch hardware sales slow?

Fry Electronics Team

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