More at the link: https://www.nintendo.co.jp/ir/pdf/2017/170502e.pdf
Q3 If demand for Nintendo Switch reaches the same levels that Wii did, isnt it likely that the product will be sold out during the holiday season if you cant secure sufficient inventory levels by the fall? Are you taking any steps to address this, such as establishing an expandable assembly line?
Our initial plan for the Nintendo Switch hardware shipments for the last fiscal year was 2 million units, but we saw the high anticipation from consumers prior to launch and began additional production, allowing us to ultimately ship 2.74 million units. We are planning to ship 10 million units this fiscal year, and this figure takes into account the fantastic response we have received from consumers. Planning to ship 10 million units means that we actually plan to produce more than that including units in our warehouse and in-transit product. We are not currently producing this full amount all at once. We expect that the number of consumers who want to buy the hardware will increase as we release titles such as ARMS, Splatoon 2 and Super Mario Odyssey, so our current production model takes that into account.
Q5 I'd like to hear your thoughts on the profitability of the Nintendo Switch platform. You mentioned previously that hardware pricing is set just high enough to stay out of the red, but there are an abundance of accessories for Nintendo Switch, while download sales, including add-on content for The Legend of Zelda: Breath of the Wild, are shifting into high gear, with a paid online service on the way. And on the promotion side, I see your eSports and Nintendo Direct initiatives as being more efficient, and I get the impression that marketing costs are more or less under control within the second year after a hardware launch. I would imagine your revenue model for Nintendo Switch is going to be different from what it was for past hardware, but can we also expect profitability to be higher than before?
We priced the Nintendo Switch hardware to have no negative impact on overall earnings. As for
the profitability of the hardware, our production quantities will need to reach a certain level before we see any cost reductions. Volume efficiencies will start to emerge once we produce the 10 million
units we expect to ship this fiscal year, but we will not get the benefit of this right away. Looking ahead, we do expect that the number and variety of the Nintendo Switch accessories will help grow our business. With regards to promotional activities, it can be difficult for consumers to really get to realize how compelling the new play style Nintendo Switch offers is through traditional marketing.
That is why we have launched new initiatives, including traveling to a variety of different locations to let consumers experience the unique fun of playing Nintendo Switch for themselves, while continuing to advertise proactively in this fiscal year. Our paid online service for Nintendo Switch is scheduled to start in the latter half of this fiscal year.
Again, we will not necessarily see results from these different strategies immediately at the outset of this fiscal year, but I believe we will see profitability continue to increase alongside the growth of our business as we move forward according to our sales strategy, especially if we do well during the year-end shopping season.
Q6 I'd like to know as much as you can share about the basis for your short and medium-term sales forecasts of Nintendo Switch. In particular, are you expecting 10 million hardware shipments during this fiscal year because that's the number your total anticipated demand in each region led you to, or are you looking at your software lineup for this period and predicting how much hardware you think you can sell? Also, you have been quoted in the media as saying that you want sales of Nintendo Switch to match the Wii sales. Should we take that to mean that your sales target for hardware is going to be 100 million units? If so, then do you envision Nintendo Switch selling not just one per household, but one per person?
We set this fiscal year's 10 million shipment forecast for Nintendo Switch based on the fact that we were able to ship 2.74 million units during the last fiscal year, which was well above our initial forecast of 2 million units, combined with the response our sales offices around the world have reported from retailers and consumers about the software we will be releasing during this period.
Mario Kart 8 Deluxe was released today and although we did not cover it when creating our sales plans, it has gotten especially positive reviews. Feedback from consumers at our ARMS and Splatoon 2 preview events has been positive, as well. We have also gotten good feedback about 1-2-Switch, which has already been released, and offers consumers a new gaming experience that takes advantage of the unique strengths of Nintendo Switch. All this together gives me the sense that Nintendo Switch is going to outperform our initial expectations.
For us, being able to reach an installed base of more than 10 million units is fundamental to creating a strong business in a number of different ways. Shipping 10 million hardware units this fiscal year, as planned, will give publishers and the rest of our business partners a sense that the future of Nintendo Switch is more promising. This is another part of the reason why we are planning to ship 10 million units this fiscal year.
The truth is we want to raise the installed base of Nintendo Switch up to the same level as Wii. As we mentioned during our presentation, Nintendo Switch in America had the fastest start of any Nintendo hardware, despite launching in March. In the video game business, its important for consumers to feel that a sales momentum is going to grow, and we are setting a standard with Nintendo Switch to release a continuous string of major software titles from now on. And if our sales go according to our plan this fiscal year, we will be able to see Nintendo Switch gaining the momentum in which it can approach relative parity with Wii afterwards.
Plus, considering that Nintendo Switch is a home console video game system that you can take with you on the go so you can play anytime, anywhere, with anyone, we think there will be households that feel as though one is not really enough. This is another point that drives us to match the scale of Wii's popularity with Nintendo Switch.
Q8 Looking at sales results for Nintendo 3DS in the last fiscal year, how has your thinking changed with regards to lifecycles in the dedicated video game system business? You announced New Nintendo 2DS XL, which will refresh the Nintendo 3DS hardware cycle, but
looking ahead to Nintendo's medium and long-term business development, including Nintendo Switch, is it possible that you will now be continually updating hardware to extend
With regards to our Nintendo 3DS business, our software sales figures in the last fiscal year were boosted significantly by titles, such as Pokémon titles, which helped increase hardware sales, and led to an overall year over year growth in sales of both hardware and software. And as discussed during our presentation, high demand for Nintendo 2DS is driven by an attractive price point on top of its hardware appeal. This is what gives Nintendo 2DS the largest growth rate out of the entirety of our Nintendo 3DS business.
We are planning to launch New Nintendo 2DS XL during this fiscal year. New Nintendo 2DS XL has screens that are the same large size as the New Nintendo 3DS XL, and can play more than 1000 Nintendo 3DS titles already released, at a very desirable price point. Our expectation is that if we are able to continue to provide enjoyable software, we will always meet the needs of consumers who want to continue playing on the existing Nintendo 3DS series. To that end, we are always thinking about what kinds of software consumers are going to want, and evaluating our hardware cycles to make sure that we are meeting that need.
This means that our product lifecycles are not going to last for a set number of years, but will be flexible enough to change when required by changing consumer needs.
In general, this is the sort of thinking we want to adopt for all our hardware development. We want to have flexible hardware cycles where the launch of new hardware sets off the development of the next hardware that will respond to consumer trends.
Q9 There are concerns that shipments of Nintendo Switch will not meet demand for up to two years, as happened with Wii. How much do you plan to increase Nintendo Switch production during the first quarter of this fiscal year compared to the fourth quarter of the previous fiscal year?
We are planning to ship 10 million units of Nintendo Switch this fiscal year, so we are preparing to produce that quantity or more. We shipped 2.74 million units last fiscal year, but this quantity was not produced solely during the fourth quarter of the previous fiscal year. We started production for Nintendo Switch in and after summer of last year and were preparing for launch over the course of several months. Since the demand for the hardware is significantly high right now, and we cannot build up inventory over a long period of time (as we did before launch), we have greatly increased the quantity we can produce in a single month. We cannot provide any specific numbers, but we are boosting our production capacity to enable us to ship 10 million units this fiscal year and handle the season of high demand.
Q11 Nintendo announced the retirement of Director Genyo Takeda due to the expiration of his term of office. I thought that the term of office for directors was one year, but was the age of 68 established as the retirement period due to internal regulations? Or is Takeda retiring because it is a good time to pass the torch on to the next generation? Please explain the background of this announcement.
Takeda expressed interest in retiring and passing the torch when his term of office expires this period. Takedas guidance has fostered many technicians over the years, particularly in the technical development departments. Ko Shiota, who we have mentioned as a candidate for the new director, was one of those Takeda mentored while developing our business.
Even after his retirement, we hope to continue seeking advice from Takeda as Special Corporate Adviser such as in terms of how we should look into new technology and play. Takedas knowledge, experience and personal connections cannot be easily transferred. We plan to take over those over time in consulting with him. We hope to progress to the next stage by combining Takedas advice and support (as Special Corporate Adviser) with the new skills of our young employees.