The global chip shortage and supply chain woes linked to Covid-19 restrictions in China are posing problems for Nintendo

Nintendo Q1 net profit jumps thanks to weak yen

Global chip shortages and supply chain problems linked to Covid-19 restrictions in China are causing problems for Nintendo – AFP Kazuhiro NOGI

Nintendo said Wednesday its first-quarter net profit jumped 28 percent year-over-year, mainly due to a weaker yen, but hardware and software sales slumped due to chip shortages and Covid-19 supply issues.

The yen has fallen more than 10 per cent against the dollar this year as rising inflation in the US exacerbated the monetary policy gap – a boon for Japanese companies like Nintendo that sell products overseas.

For the three months ending in June, the gaming giant reported a net profit of 118.9 billion yen ($893 million), citing the positive impact of a “declining yen”.

But the company left its annual forecast unchanged, warning that global shortages in semiconductors and other logistical problems could hamper production and distribution of consoles.

New game releases are off to a good start, including “Nintendo Switch Sports” and “Mario Strikers: Battle League,” she said, but sales were still out of line with the previous year during the pandemic gaming boom.

“Due to the effects of supply shortages in semiconductors and other components among other factors, hardware sales were down 22.9 percent year on year, and software sales were down 8.6 percent year on year,” Nintendo added.

The increased demand for indoor entertainment during virus lockdowns has pushed the company’s profits to a record annual level of 480 billion yen in 2020-2021.

The company nearly matched that number last fiscal year, with its successful Switch console continuing to perform well and strong software sales, especially for “Mario Party Superstars” and the latest Pokemon titles.

But Nintendo now has a more cautious view as life returns to normal, causing the gaming frenzy to slow, and forecasts a net profit of 340 billion yen in 2022-23.

Hideki Yasuda, chief analyst at Toyo Securities, warned that chip shortages and supply problems associated with the Covid-19 shutdown in China will continue to cause headaches for Nintendo.

“The company is feeling a lot of pressure on its supply chain,” he told AFP before the earnings were announced. “The Switch is sold out in stores. Not enough to offer.”

Yasuda said it would be “very difficult” for Nintendo to meet the console’s annual production target if problems persist, after Switch sales fell 20 percent year-over-year in 2021-22.

However, he said a recession in the US or elsewhere is unlikely to be a major problem.

“Video games do not feel the impact of recessions. When the economy is strong, people buy products. When the economy is weak, people spend more time playing games.”

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