The Nintendo Switch has had a great run

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Nintendo’s flagship Nintendo Switch has rewritten game console history. Until the Switch’s launch in 2017, the life cycle of a gaming console was typically about five years.

Going into the eighth year since its launch, Nintendo has finally said it will announce a successor to its blockbuster console — a pledge that came after company guidance of a significant profit decline for the current financial year. 

The Japanese gaming company expects operating income to fall by about a quarter to ¥400bn ($2.6bn) in the year to next March on ¥1.35tn in net sales, missing market estimates, with a big drop in Switch sales. Software sales are also expected to decline, from 200mn units to 165mn units. For the March quarter, Nintendo earned an operating profit of ¥64.5bn, also below market expectations — all signs that the extraordinary Switch life cycle may finally be coming to an end.

The Switch has had an impressive run. Cumulative global shipments of the Switch were at nearly 140mn units as of last year, among the top three highest number of consoles sold in gaming industry history. That large user base has helped Nintendo build out other high-margin businesses such as its Nintendo Switch Online subscription service. The Switch’s age has also meant much more time for game developers to create exclusive blockbuster titles for the console, such as The Legend of Zelda: Tears of the Kingdom. This has led to years of strong game software sales. Nintendo shares have more than quadrupled since Switch’s launch. Operating margins have increased more than fivefold.

Meanwhile, the predicted shift away from traditional gaming to cloud gaming — once seen as the successor to gaming consoles — has been much slower than expected. In the past year Nintendo shares have risen 35 per cent, outperforming local gaming peers including Sony, reflecting the longer than expected success of the Switch.

In the short term, the announcement of an upcoming successor will weigh on existing Switch sales as gamers delay purchases until the new console goes on sale. Sony’s newer and higher performance PlayStation 5 console, which took market share last year, will add further competition.

But the effects of the Switch’s success will be long lasting. It has given Nintendo more than seven years to build up a large user base for its premium subscription services as well as a fan base for its game characters.

That should give its successor a good chance at finding an edge over its rivals.

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