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Nintendo to ramp up production of Switch as demand soars

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Nintendo to ramp up production of Switch as demand soars

Gaming console helps boost company’s valuation to highest since 2008

Nintendo has boosted production of its Switch console as fans scramble to secure the devices

Nintendo has ordered a production increase of its Switch gaming console as global stocks fail to meet demand and disappointed fans scramble to secure machines through an informal online market in “Switch futures”, say people close to the company.

The planned production hike for the console is designed to meet demand ahead of the Thanksgiving and Christmas sales peak in late autumn, and has been ordered just weeks after Nintendo declared the $300-priced Switch to be its fastest-selling gaming device.

The success of the Switch, which was intended to bridge the gap between television-based and portable gaming, has boosted investor confidence in Nintendo. Shares in the company hit their highest level since 2008 on Friday giving it a stock market capitalisation of nearly ¥5tn ($45bn). That would make the creator of Super Mario and Donkey Kong more valuable than compatriots Nissan or Panasonic.

The pace of sales of Switch consoles, which tend to sell out within a few hours of arriving at retailers, has prompted some to compare the device with Nintendo’s Wii. That console was released in 2006 and went on to sell more than 100m units, partly because it won over families and children who were not hardcore gamers.

People involved in Nintendo’s hardware supply chain say the Kyoto-based games maker is now targeting Switch hardware production of 18m units for the 12 months ending March 2018.

According to people close to the company, the production increase reflects fears of “customer tantrums” as Nintendo prepares to release its flagship Mario Odyssey game in November.

Nintendo denied that it had plans to boost production to that level, sticking to its official hardware shipment target of 10m for the console that was launched in March. But analysts have assumed for months that the company would substantially exceed that number.

Some, such as Hirotoshi Murakami at Mitsubishi UFJ Morgan Stanley, believe that Nintendo is being intentionally conservative in its guidance and predicts that it will produce as many as 20m consoles by the end of the financial year.

But the company may be constrained in its effort to ramp up production by the availability of key components such as liquid crystal display screens.

The difficulty of obtaining a Switch in Japan has created a side market based on the way that some retailers offer free guaranteed bookings of product delivery on a specific date. People who have managed to secure those guarantees have found they can sell the consoles online to desperate gamers: the market price for a guaranteed Switch delivery in July, for example, has been pushed to about ¥14,000 ($126).

Other companies have benefited from Nintendo’s boom, too. Best Buy, the US retailer, saw its shares spike to an all-time high last week when it cited the Switch as a key reason it had beaten same-store sales expectations. Shares in Hosiden, one of Nintendo’s key component suppliers, have surged to a seven-year high, and on Friday, games publisher Capcom saw its stock jump to a six-month high after it tweeted that the next generation of its hit Monster Hunter series would be available on the Switch.

Also built into the rising share price is growing investor confidence that Nintendo intends to monetise its intellectual property via smartphone games — a market worth tens of billions of dollars a year but which the company shunned for many years. People close to Nintendo have confirmed that it is planning to release a mobile game based on its blockbuster Legend of Zelda series.

One question on which analysts agree is that the Switch shortages confirm Nintendo’s reputation for poorly predicting demand. Some observers have even suggested that the company is using the shortage as a marketing ploy.

Serkan Toto, a gaming industry consultant, says that is unlikely. “You cannot go into the management’s heads, of course, but I think they just miscalculated demand,” he says. “It’s not as though they need to create a buzz — there already is one.”

Kazunori Ito, analyst at research firm Ibbotson Association Japan, a Morningstar affiliate, adds that forecasting demand for the console is particularly difficult because mobile games such as Pokémon Go and Super Mario Run have created undefined leagues of new fans of Nintendo games.

Mr Ito forecasts that Switch will sell roughly 80m units over its lifetime, of which 20m-30m represent traditional Nintendo fans.

“Nintendo’s user base has expanded beyond the company’s expectations partly thanks to Pokémon Go, which has made it difficult for the company to predict demand even for traditional software such as Zelda and Mario Kart,” he says.

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