Nintendo (OTCMKTS:NTDOY) had a record holiday quarter for sales of its Switch game console, but that still wasn’t enough to meet its yearly sales target.
Adding to the company’s woes, sales of its low-cost 3DS handheld are falling even faster than expected. Things will get even tougher this year, with Microsoft (NASDAQ:MSFT) expected to release a lower cost, disc-free Xbox One and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) launching its Stadia streaming game service that can deliver AAA games to mobile devices.
In response to these challenges, the company is reportedly working on two new Nintendo Switch models: a low-cost version and a higher-end model.
With Nintendo stock down 36% from this time last year, and the Switch now two years old, the company clearly feels it needs to make some big moves in 2019.
Not One New Nintendo Switch, But Two
Going back to last fall, slowing Switch momentum was hitting Nintendo stock as investors got nervous. Even after delivering its best Q2 in eight years, NTDOY took a hit over concerns that the Switch wasn’t going to sell in the numbers Nintendo was aiming for. Then the first rumors that a new Nintendo Switch was in the works began in the fall of 2018.
The Wall Street Journal reported that Nintendo had plans for a new model of its handheld hybrid console planned for release this summer, with the LCD display expected to get an update. After that initial speculation, rumors began to grow that there was indeed a new Nintendo Switch coming in 2019, but that it would be a lower cost, “stripped-down” version of the current console.
Today, The Wall Street Journal came out with a new report on NTDOY’s hardware plans. This time, the newspaper’s sources say both rumors are true: Nintendo is actually working on two new Switch consoles, a low-cost version, and a new higher-end model.
Solving Multiple Problems
The strategy of releasing a pair of new Nintendo Switch models could solve multiple problems Nintendo faces in 2019.
The low-cost version, which is reported to ditch a few features like the controller’s rumble capability, with a focus on portability, could be the successor to the 3DS.
Nintendo’s lower cost portable is now eight years old, and its sales are declining more quickly than the company anticipated. A low-cost Switch (which would still be compatible with all Switch games) would take over from the 3DS and appeal to gamers who couldn’t afford the current Switch. This budget-friendly version could also convince owners of other consoles to pick up a cheap Switch as well, for portable gaming.
The increase in overall Switch units would also help to keep third-party game developers interested in the platform.
A higher-end version of the Switch would include an improved LCD display and a new processor. According to the WSJ report, Nintendo is targeting gamers who lean toward the Xbox One X or PS4 Pro (although the new Nintendo Switch would not be as powerful as those consoles). It is also likely to trigger an upgrade cycle among current Switch owners who want the improved hardware.
The company is expected to follow the same approach Microsoft and Sony (NYSE:SNE) took with their upgraded consoles, ensuring games are playable on all console versions, but offering enhanced graphics performance on the higher-end model.
Last year, Nintendo tried keeping the Switch’s momentum going with Labo cardboard building kits and the release of several big games, primarily Super Smash Bros. While that led to some record-setting quarters, including a holiday sales quarter where the company moved 9.4 million units (up 30% from the previous year), NTDOY still had to revise its full-year sales of the console down.
After two years on the market, offering two new Nintendo Switch models — one for price-conscious shoppers and one to tempt hardcore gamers — may be the answer to kickstarting sales. And the move may just help Nintendo stock recover from the past year’s losses.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.