Chip shortage eats into Nintendo Switch console profits

Nintendo Switch is currently sold at a profit, but that margin is being lowered by the worldwide chip shortage.

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Nintendo CEO Shuntaro Furukawa tells investors that ongoing semiconductor supply issues are slowly eating into Switch hardware profits. Supply and demand economics have raised prices of critical components, and the Switch in particular is becoming more expensive to manufacture, produce, and distribute.

In a recent Q3'22 Q&A session, Furukawa says profits made from Switch console unit production have been dipping gradually throughout the chip shortage. The CEO confirms Nintendo is prepared for the profit hit and will maintain its 23 million unit production forecast through FY22, but he also notes that next year's FY23 period could be impacted to an even greater degree.

"The recent component shortages are leading to increased costs. And even though the rise is gradual, it has been impacting our gross profit," Furukawa said.

"Looking at the full year, we anticipate that impact to be minor this fiscal year, but if costs continue at current levels through next fiscal year as well, then we would expect hardware profitability to decrease correspondingly compared to this fiscal year."

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The Switch released in 2017 at a profit and Nintendo has maintained a specific margin throughout the system's lifespan. The newly released Switch OLED, however, is a more premium system and is more expensive to make. Nintendo is taking a bigger profit hit on these units compared to the original base and Switch Lite models.

"Unless the situation changes dramatically, we do not foresee profitability improving next fiscal year and beyond. That said, these cost increases do not affect our production plans, and we will continue to produce the volume required to meet demand."