Nintendo Fights Parts Shortage for Switch -- WSJ
May 31 2017 - 3:02AM
Dow Jones News
By Takashi Mochizuki
TOKYO -- Nintendo Co.'s biggest battle these days isn't against
other game makers. It is against companies such as Apple Inc. that
are gobbling up the same parts Nintendo needs to make its hit
Switch machine, people in the industry say.
Nintendo has told suppliers and assemblers it hopes to make
nearly 20 million units of the Switch device in the year ending in
March 2018, people involved in the discussions said. Though the
company's official sales target for the year is 10 million, strong
demand suggests it can sell many more -- if it can make them.
The problem is an industrywide capacity shortage for components
used in smartphones, computer servers and other digital devices.
These include the NAND flash-memory chips that store data, as well
as liquid-crystal displays and the tiny motors that enable the
Switch's hand-held controllers to imitate the feel of an ice cube
shaking in a glass.
"Demand for our NAND flash memory has been overwhelmingly
greater than supply, and the situation is likely to stay for the
rest of this year," said a spokeswoman at Toshiba Corp., the
industrial giant that is leaning on flash memory to survive. She
cited demand from smartphone makers -- Apple and Chinese companies
are among Toshiba's customers -- and data centers.
People in the industry say the rapid expansion of web-based
services for corporations has driven demand for computer servers
that use flash memory. Continued demand for Apple's iPhone 7 and a
10th anniversary model of the iPhone expected later this year are
also keeping parts makers at full capacity, helping power Japan's
economy to its longest growth streak since 2006.
Nintendo and Apple representatives declined to comment on
supply-chain issues.
Nintendo's component struggles suggest the Switch, a hybrid
device designed for use both in the living room and on the go, is
likely to remain hard to find for consumers throughout this
year.
Analysts say rivals for the sought-after parts can often offer
better terms than Nintendo. Makers of data-center servers tend to
use newer and higher-margin components, while smartphone makers
issue larger orders than Nintendo.
If Nintendo increased spending significantly to secure more
parts, that could risk driving the Switch's production cost above
the $299 retail price. President Tatsumi Kimishima, has said he
doesn't want to sell the Switch at a loss.
Nintendo has already taken one expensive step to ensure early
sales momentum for the Switch by using air cargo to deliver some
units to the U.S. and Europe in March.
Normally, Nintendo could use the late summer months to deliver
extra supplies to the U.S. by ship in preparation for the holiday
season, but that is more difficult now and Nintendo might again
consider air cargo toward the end of the year, people briefed on
its thinking said.
In April, Nintendo said the Switch, which went on sale globally
March 3, sold 2.74 million units in March.
The company was burned by the poor performance of the Switch's
predecessor, the Wii U machine, which had lifetime sales of fewer
than 14 million units, but the recent good news has driven
Nintendo's share price to an eight-year high.
Some families are buying multiple units, treating them more like
smartphones than living-room consoles because of the Switch's
portability.
Yukiko Amakawa, a 36-year-old homemaker in Fukuoka, Japan, said
her family of four owns three Switches: one for herself; one for
her husband to play on the train while commuting; and a third for
their children, a 6-year-old boy and 3-year-old girl.
"I don't want anyone touching my playing data," she said. "While
my kids play Mario Kart on TV, I play some other games on the
Switch's portable screen."
Hirokazu Hamamura, a director at Kadokawa Dwango Corp.,
publisher of the videogame magazine Famitsu, said momentum was
likely to pick up as outside software publishers add games to the
Switch's lineup. Capcom Co. of Japan plans to release a "Monster
Hunter" title for the Switch.
Write to Takashi Mochizuki at takashi.mochizuki@wsj.com
(END) Dow Jones Newswires
May 31, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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