After a rather lucrative 2020 in which sales of Switch hardware were undoubtedly impressive, seemingly only restricted by some supply issues, Nintendo has been seeking to maintain momentum. However, for the current financial year it set a target of 25.5 million hardware sales, down from 28.83 million sales from the 2020/2021 period. Some assumed this could be related to drops in demand for the system as it gets older, which is possibly partly the case, but it was also reportedly a result of the ongoing manufacturing and chip shortage issues in the industry.
In its most recent financial report Nintendo again acknowledged the challenges of supply constraints, alongside continuing issues related to the COVID pandemic. The company has consistently stated that its projections are contingent on being able to maintain its production targets.
In regard to business risk, the extended impact of both COVID-19 and the global semiconductor shortage creates a state of continued uncertainty, with the possibility of future impact on production and shipping. While these and other unforeseen risks exist, we continue to take all necessary measures in conducting business.
Nikkei is now reporting that earlier this year Nintendo was actually planning to ship 30 million Switch systems in this financial year. The publication suggests that Nintendo re-assessed the target in the Spring - presumably prior to issuing its financial projections - as a result of manufacturing and chip shortage issues, giving us the eventual 25.5 million figure. Nintendo has acknowledged to Nikkei that component shortages are an issue and "we are assessing their impact on our production".
The Nikkei report states that Nintendo may now only produce 'around 24 million' units in this financial year, which would be a cut from the current 25.5 million target. Nintendo's Q2 financial reports are due later this week, so they'll state clearly whether the company is revising its targets down.
The key point in this report is that potential declines in Switch sales are more likely caused by supply constraints; seemingly demand is still sufficient to shift even more units. This is reinforced by reports that Nintendo has struggled to meet demand for the Switch OLED model in Japan, in particular, with many retailers in the country having to resort to lottery systems due to limited stock.
It's also worth noting that Nintendo is far from alone in terms of manufacturing issues. It has arguably been affected less than its rivals in the gaming space, with both Sony and Microsoft having significant problems meeting demand for the PlayStation 5 and Xbox Series X (Series S is easier to acquire in some territories).
More will become clear later this week with Nintendo's financial reports.