Sales of the hybrid Switch game console are losing momentum and Nintendo (OTCMKTS:NTDOY) stock is down from five-year highs set early in the year. How to goose sales again? It appears that the company is turning to a gaming industry standby: a hardware refresh. A report in The Wall Street Journal says a new Nintendo Switch is planned for 2019.
A new Nintendo Switch could be just what’s needed to generate excitement, ramp up sales again and help Nintendo stock regain its loses over the summer. However, the move is not without risk.
Nintendo Switch Sales Slowing
Earlier this year, Nintendo was making headlines. Switch sales were on fire, quarterly revenue was up triple digits and Nintendo stock was hitting levels not seen in nearly a decade. By the end of March, lifetime Switch sales — which amounted to little over a year — were nearly 18 million units. The company was bringing a new president on board, it released the new Labo line of interactive cardboard construction kits and its online service for the console launched in September.
However, the pace of Switch sales began slowing. The console is stilling doing well — by the end of July it was within reach of 20 million units — but the number of units sold that quarter was down 100K compared to the previous year.
At this point, it appears that the next strategic move is a tried and true one in the video game console industry: release a new Nintendo Switch with improved hardware.
Reports Says New Nintendo Switch Expected in 2019
The Wall Street Journal reports that Nintendo is planning to release a new Nintendo Switch version in the second half of 2019, possibly as early as the summer. While short on details of exactly what might change, it’s suggested that the current console’s LCD display could be improved by a new, more advanced panel.
The report says that “many features” will be shared with the existing console, and that the new Nintendo Switch will be fully compatible with games that have been released to date.
A Proven Move That Does Have Some Risk
Updating console hardware with a refreshed version is a familiar tactic. In the current generation, Sony (NYSE:SNE) has already done it with the Playstation 4 Slim and then PS4 Pro. Microsoft (NASDAQ:MSFT) eventually replaced the Xbox One with the Xbox One S, and then added the Xbox One X to the lineup. Nintendo has used the same move repeatedly with its hand-held consoles, including the DS and 3DS. Nintendo could end up with the Switch and New Switch in its lineup, offering two price points — similar to its current 3DS and 2DS handhelds. That would boost overall Switch platform sales, and with a larger user base, sell more games as well.
The key to a successful transition to new hardware is ensuring that the new version is completely backwards compatible with existing games. Then the company has to work with developers to ensure new games that take advantage of the refreshed hardware are still fully playable with legacy hardware.
The biggest risk for NTDOY is likely the time between now and next summer. With word out that a new Nintendo Switch is coming, potential buyers may hold off on purchasing the console until 2019. The timing of the report is not great for Nintendo in that respect, with the holiday shopping season fast approaching. The company is releasing new blockbuster games like Super Smash Brothers Ultimate at the start of December in an effort to boost holiday sales, but rumors that the hardware may soon be “outdated” could derail that effort.
In the long term, a new Nintendo Switch is likely to boost console sales. In the short term — between now and next summer — things may continue to be bumpy for Nintendo stock, especially if potential buyers decide to hold off on Switch purchases until the new hardware arrives.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.