Nintendo will reduce the production of its Switch 2 game console. This is because fewer people are buying it than expected. Sales were lower during the holiday season, especially in the United States. The console costs $450.
Nintendo plans to make 4 million units this quarter. This is one-third less than the 6 million units they originally planned. This information comes from people familiar with the matter.
The production cut will likely continue into April. This is according to a Bloomberg report that cited these sources. The report was seen by "Al-Arabiya Business".
After a strong launch in June, the Switch 2 did not meet Nintendo's high sales expectations. Sales are still good in Japan for a cheaper version. But sales in the United States have not been as strong.
Nintendo's stock fell by up to 6.3% in Tokyo. This was the biggest drop in a single trading day since February 4. The stock price briefly fell to 8,835 Japanese yen. It lost gains made earlier in the month. These gains were due to the success of the new game Pokemon Pupukopia. The stock later recovered some losses.
The success of Pokemon Pupukopia did not make Nintendo increase Switch 2 production. Instead, the company is waiting. They want to see if the game and other new games will sell well enough. If they do, Nintendo might increase production. This is according to sources.
Amir Anvarzadeh, a Japanese equity strategist at Asymmetric Advisors, said, "This lack of hardware in its first year, during the key holiday season, is very bad news." He added, "Clearly, the game lineup was weak, at least until recently with some hope in Pokemon."
Sources also said the production cut will not stop Nintendo from meeting its sales target. They expect to sell about 20 million units in the current fiscal year ending this month.
The Switch 2 also faces cost challenges. Higher prices for memory chips have affected electronics makers globally.
Higher semiconductor costs made Nintendo think about raising the console's price. Bloomberg reported this last month. However, it did not cause the production cut. Sources said the cut is because consumer demand has slowed down.
Sales Doubts
This slower-than-expected momentum might push Nintendo to act. They may offer new versions of the console to boost demand.
The second year a game console is on the market is important for its long-term success. A growing user base attracts game developers. This creates a positive cycle that draws in more players.
The Switch 2 sold 17.37 million units last year since its launch on June 5. It is the most successful game console launch in Nintendo's history. Nintendo is based in Kyoto.
However, doubts remain about Nintendo's ability to create games. These games need to keep consumers buying the console. This is especially true as competition from companies like Sony grows stronger. Nintendo created the Mario Bros. game series.
Nintendo admitted that demand has decreased. President Shuntaro Furukawa said on a call on February 3 that "Overseas sales were a little weaker than expected." Sales in Japan exceeded expectations. This was helped by a local release priced at 49,980 yen ($324).
Nintendo's stock fell 40% in the six months ending in mid-February. Concerns grew about its games and the Switch 2's long-term success. This month, the stock recovered some losses. This was after the success of Pokemon Pupukopia, which sold over 2 million units in just four days.
Nintendo usually starts each fiscal year with conservative hardware sales forecasts. They then gradually increase them as momentum builds. This is especially true after the third quarter, which includes the crucial year-end shopping season.
For the current fiscal year ending in March, Nintendo initially expected to sell 15 million Switch 2 units. They raised this target to 19 million in early November after the strong launch.
But Nintendo kept its forecasts unchanged when announcing third-quarter earnings in February. This is a point in the fiscal cycle when Nintendo usually raises forecasts if performance is on track. This decision suggests sales might have fallen short of expectations during the holiday period.
The 19 million unit target also seems conservative compared to analyst estimates. Analysts expect about 20 million units to be sold. The adjusted production plan will allow Nintendo to meet these forecasts. However, the decision to cut production suggests the company was preparing for stronger demand than it is currently seeing.