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Nintendo Switch Hybrid Game Console Fails to Impress Investors

Nintendo Switch Hybrid Game Console Fails to Impress Investors

By Yuji Nakamura, Pavel Alpeyev, Bloomberg | Updated: 21 October 2016 10:50 IST

Highlights

The new system, originally dubbed NX, will be released in March
Shares in Tokyo fell as much as 5.2 percent
Company is betting the hybrid approach will help the Switch become a hit

Nintendo Co. shares dropped on Friday after the company's new gaming platform Switch failed to impress investors.

The long-awaited device, featuring a tablet-like console that will let gamers play at home and on the go, was unveiled in a three-minute video released late Thursday. The Kyoto, Japan-based company showed gamers using the new system to play in their living rooms, but also detaching a part of it to continue playing at an airport, in a car and at a barbecue.

"It's a disappointing console," said Amir Anvarzadeh, Singapore-based head of Japanese equity sales at BGC Partners Inc. "It doesn't enhance the gaming experience when you have a smartphone in your pocket."

Nintendo showed several titles from its flagship franchises, including Zelda, Super Mario, Mario Kart and a basketball game. The company reiterated in the video that the new system, originally dubbed NX, will be released in March. A price wasn't disclosed.

Shares in Tokyo fell as much as 5.2 percent, erasing the previous day's rally that was triggered by news that the promotional video would be released.

(Also see: Everything You Need to Know About the Nintendo Switch)

Smartphone embrace
The video focused squarely on the millennial demographic, young adults in their late 20s early 30s. This suggests a departure from Nintendo's mission of making games for the whole family. The difference is particularly clear when compared with a video introducing the Wii more than a decade ago, which features grandparents playing along with kids. The company is trying to carve out a niche between casual smartphone gamers and more serious players who use consoles such as Sony Corp.'s PlayStation 4, according to Niko Partners analyst Daniel Ahmad.

"They've certainly found their place in the market and this is the most logical thing for Nintendo to do," said Ahmad, who covers the game industry.

The new device features a tablet-like display unit that can dock at home and connect with the TV, or be taken out and about with two detachable controllers for multiparty play. Nintendo President Tatsumi Kimishima said in April that "it will allow for a whole new way to experience hardware and software together."

The Switch's portable feature puts it at odds with Nintendo's recent embrace of smartphones. After years of ignoring pleas from fans and investors to bring its games to mobile phones, the company is planning to release Super Mario Run for Apple's devices in December. The release follows this summer's wildly successful Pokemon Go, which was developed by San Francisco-based Niantic Inc. with Nintendo's help.

Investors have cheered the shift to mobile, sending Nintendo shares in Tokyo up more than 60 percent this year through Thursday's close. Nintendo is also planning to release mobile titles for its Animal Crossing and Fire Emblem franchises by March.

The company is betting the hybrid approach will help the Switch become a hit like the Wii, its most-successful console ever thanks to its motion-tracking controllers. The machine, which debuted in 2006, went on to sell more than 100 million units worldwide and helped propel the company's market value to about $90 billion (roughly Rs. 6,02,090 crores) in late 2007, almost three times its market capitalization today.

But its 2012 follow-up, the Wii U, was criticized for being less powerful than competing consoles from Sony and Microsoft. Only 13 million units were sold as of June, less than a third of the 40 million PlayStation 4s that Sony has shipped.

Ahmad said that while the Switch will end up competing with smartphones, it also offers features that make it superior. Not only will controllers provide a better gaming interface than a smartphone touchscreen, but having two of them should allow gamers on the go to get started with much less hassle.

"On mobile, to get other players to play with you you'd typically need two separate smartphones.," said Ahmad. "This is a lot more inclusive and this is a good move from Nintendo."

Price point
How well the new hardware does may depend largely on the price, according to Macquarie Securities analyst David Gibson. In a research report last week, he estimated the device would retail for about $250 to compete with the PS4's $299 price tag. Gibson wrote that the new hardware is likely to disappoint in terms of revolutionary features, but that a strong lineup of gaming titles will help to fuel demand at launch. He estimated Nintendo will sell 2.5 million units in its first month and an additional 10.6 million units by March 2018.

Nintendo said several game developers and publishers will make titles for the Switch, including Activision Blizzard Inc., Capcom Co., Square Enix Holdings Co., Bandai Namco Holdings Inc. and Electronic Arts Inc., among others. Nvidia said its graphics chips will power the new device.

Nintendo's Switch console could "revolutionize" the way people play games because of its unique capabilities and design, Ubisoft Entertainment SA Chief Executive Officer Yves Guillemot said in an e-mailed statement. The Montreuil, France-based company that has made hits including Assassin's Creed and Far Cry is working on several games for the new platform, including Just Dance 2017, Guillemot said.

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