Nintendo hikes profit forecast despite gaming boom slowdown

Nintendo upgraded its full-year net profit forecast on Thursday despite a weaker performance in the first half as the coronavirus lockdown-fueled global gaming boom slowed.

The Japanese giant said it expected stronger software sales for the year to March 2022, on the back of healthy sales in the first half and ahead of releases including three titles in the popular Pokemon franchise.

But it lowered its annual sales target for its Switch console as a worldwide chip shortage continues to affect many industries including video games.

"We lowered planned shipments for the second half after we reviewed our production plan, facing the impact of a global supply-demand crunch of semiconductors and other parts," Nintendo said in a statement.

Japanese media reported this week that annual Switch production was expected to fall around 20 percent from its target for the current fiscal year due to the chip crunch.

Despite the headwinds, the Kyoto-based firm projected net profit at 350 billion yen ($3.1 billion) for the year to March 2022, up from an earlier estimate of 340 billion yen.

And it raised its software sales target to 200 million units, "considering sales results in the first half".

"Software sales are expected to gain for the second half thanks to planned new releases in the Pokemon series, which will boost Nintendo's overall profit," Hideki Yasuda, an analyst at Ace Research Institute in Tokyo, told AFP.

Nintendo will release "Pokemon Brilliant Diamond" and "Pokemon Shining Pearl" in November, with plans to launch "Pokemon Legends: Arceus" in January.

However, "hardware is feared to be in short supply" in the coming months due to blackouts in China and the semiconductor shortage, Yasuda said.

Nintendo lowered its annual Switch sales target to 24 million units for the current fiscal year from the 25.5 million forecast earlier.

The company posted its highest ever annual profit in 2020-21, boosted by the runaway popularity of the Switch and the family-friendly game "Animal Crossing" as demand for indoor entertainment exploded at the height of the pandemic.

But as everyday life resumes in many countries, the run of good fortune for game-makers has slowed.

For the six months to September, Nintendo's net profit dropped 19.4 percent to 171.8 billion yen -- still well up from 62 billion yen in April-September 2019.

"Profit levels were abnormally high last year," Yasuo Imanaka, chief analyst at Rakuten Securities, told AFP ahead of the earnings release.

"Against the backdrop of lockdown demand, 'Animal Crossing' and 'Mario Kart' helped generate profit enormously. So it is hard for Nintendo to surpass last year's results."

Imanaka said the Switch, which can be handheld or used with a TV, was "facing a crucial year" after its 2017 release. Nintendo's new console sales have previously tended to peak in the third year before tapering off.

The handheld-only Switch Lite model came out in 2019, and in October this year, Nintendo released the Switch OLED, featuring upgraded graphics and memory.

The new version appears to be getting off to a good start, even though its recommended retail price is higher than that of the original, analysts said.

However, Matthew Kanterman, senior equity researcher at Bloomberg Intelligence, gave a less optimistic prediction for Nintendo's full-year results.

"The OLED Switch is a great piece of hardware, but it's not a huge upgrade," he told AFP ahead of the results.

"It's not going to drive the demand. Without a big software release from the first-party studios, revenue is probably going to come down quite significantly this year."