Nintendo may be willing to make less Switch 2 profit in order to grow unit sales

Nintendo sounds like it is prepared to take a reduction in hardware profitability if it means growing the Switch 2's installed base.

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After the failure of the Wii U, Nintendo came up with an aggressive plan to pursue hardware profitability, leading to the Switch handheld-hybrid releasing for $299 way back in 2017. The Switch was sold at a profit on day one, and since then, Nintendo's business has prioritized hardware profitability wherever possible. While Nintendo still plans to pursue this plan, the company may run out of wiggle room due to ongoing component shortages that threaten to drive up manufacturing costs, leading to a regression back to the semi-subsidized model where software helping offset the higher hardware production costs.

In a recent Q&A with investors, Nintendo president Shuntaro Furukawa remarks on the Switch 2 pricing situation, saying that there are no immediate plans to raise consumer pricing. Furukawa says that many options will be explored insofar as maintaining profitability, but years 2 and 3 are the Switch 2's primary growth points and Nintendo wants to try to boost sales and fill out the system's installed base as much as possible throughout this time.

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This could indicate that Nintendo will hold off on raising prices on the Switch 2 until absolutely necessary, and that new production contracts that are negotiated may have more robust terms that look out for Nintendo in the long run.

Here's what Furukawa said during the investor's Q&A:

"The current rise in memory prices is happening at a pace that exceeds our expectations. In general, the profitability of hardware tends to improve with economies of scale, and we want to continue to reduce costs as much as possible through mass production of Nintendo Switch 2 hardware.

"With regard to not selling hardware at a loss, what we are focusing on is profitability on a global basis. There are various external factors, such as fluctuations in exchange rates, but looking at the global picture, we have traditionally tried to avoid situations where individual units are sold at a loss as much as possible.

"It is difficult to predict the changes in the external environment that are currently taking place, but I think it is not an appropriate approach to be excessively influenced by short-term trends. The second and third years for Nintendo Switch 2 are very important, and if we can expand the hardware installed base, we can use that as a basis to greatly expand software sales.

"We will take this into account when making business decisions and flexibly consider various options."