Nintendo profits dip as Switch demand slows ahead of next-gen launch

Nintendo reported weaker-than-expected earnings for its fiscal third quarter, as declining demand for its ageing Switch console weighed on revenue and profitability.

The gaming giant posted a net profit of 128.53 billion yen ($862 million), a 6% decline year-on-year, falling short of market expectations.

Revenue stood at 432.92 billion yen ($2.9 billion), significantly below the projected 498.22 billion yen.

As the company prepares for the release of its next-generation console, dubbed the ‘Switch 2’, concerns are mounting over Nintendo’s ability to sustain growth amid shifting gaming trends.

The firm has slashed its annual sales forecast for the Switch, now expecting to sell 11 million units, down from an earlier estimate of 12.5 million.

With total Switch sales surpassing 150 million since its 2017 launch, Nintendo faces a challenge in persuading users to transition to new hardware while maintaining engagement with existing players.

Switch sales decline adds pressure

The Switch, once a revolutionary hybrid gaming system, has seen a steady decline in sales as it nears its eighth year in the market.

In the December quarter alone, Nintendo sold 4.82 million units, a 30.6% drop year-on-year, underscoring the fading momentum of its flagship console.

The company has attempted to extend the lifecycle of the Switch through hardware revisions, such as the OLED model, and by leveraging its intellectual property with blockbuster games and entertainment ventures like the Super Mario Bros. Movie.

Despite these efforts, competition from Sony’s PlayStation 5 and Microsoft’s Xbox Series X|S has intensified, and the broader gaming industry is witnessing a shift towards cloud gaming and subscription-based services.

While Nintendo has built a loyal user base—129 million active players annually—it must navigate a complex transition to its next hardware generation.

With the ‘Switch 2’ expected to debut in 2025, Nintendo has hinted at some level of backward compatibility, allowing certain Switch titles to run on the upcoming system.

Details regarding the console’s price, hardware capabilities, and launch lineup remain undisclosed.

Industry analysts warn that managing this transition effectively will be crucial for sustaining Nintendo’s dominant position in the gaming sector.

Revenue outlook dims

Amid sluggish hardware sales, Nintendo has also revised its financial projections, cutting its full-year net profit forecast by 10% to 270 billion yen ($1.8 billion).

The company’s lowered guidance reflects ongoing macroeconomic challenges, shifting consumer demand, and the natural decline of a console nearing the end of its lifecycle.

The upcoming Nintendo Direct presentation on April 2 is expected to shed more light on the company’s strategy, potentially offering new details on the ‘Switch 2’ and upcoming software titles.

Investors will be watching closely to assess whether Nintendo can reignite interest in its hardware ecosystem and maintain its profitability ahead of the next console launch.

Nintendo’s future hinges on its ability to capitalise on its strong IP portfolio while delivering a compelling reason for players to upgrade.

The challenge will be ensuring that the transition from the Switch to the ‘Switch 2’ does not lead to a prolonged sales slump, particularly as rival gaming firms continue to evolve their platforms and business models.