As the global memory shortage worsens, prices for console game devices are rising across the board. Nintendo recently said it will raise prices for its consoles, the "Switch" and "Switch 2," by more than 12%. With profitability under pressure and shares sluggish due to so-called "chipflation (memory + inflation)" driven by growing demand for artificial intelligence (AI) chips, the company ultimately decided to adjust device prices, analysts said.
If the memory shortage drags on, Microsoft (MS) Xbox is expected to join Sony and Nintendo in raising prices. There are also concerns that if higher device prices dampen console sales, domestic and overseas game makers aiming for a rebound with new PC and console titles will take a hit in succession. In the actual market, worries have grown that there are not enough compelling new releases to offset higher console prices, and Nintendo shares plunged nearly 10% intraday on the 11th on the Tokyo exchange.
According to the game industry that day, Nintendo will raise prices on the Switch lineup starting on the 25th of this month. In Korea, the base "Switch" model will go up 13.89%, from 360,000 won to 410,000 won, and the Nintendo Switch OLED model will rise about 12%, from 415,000 won to 465,000 won.
The price hike for the newest model, "Switch 2," is set to take effect in September. The exact increase will be announced later, but considering that the "Switch 2" will be raised 20% in Japan and adjusted to $499.99 in the United States, up 11%, it is expected to climb by at least 10%.
Nintendo delivered strong results last year on steady sales of major games and devices, but it appears to have pulled the price-hike lever to address higher costs from the memory shortage and the resulting stock underperformance. Nintendo's revenue last year was about 2.313 trillion yen (about 21.68 trillion won), nearly doubling from a year earlier, and operating profit rose 27.5% in the same period to 360.1 billion yen.
Sales of the "Switch 2," released in June last year, reached a cumulative 19.86 million units, driving results. The success of related games is also seen as contributing to console sales. "Mario Kart World" sold 14.7 million copies, "Donkey Kong Bananza" sold 4.52 million, and the exclusive title "Pokémon Pokopia," released in March to mark the 30th anniversary of "Pokémon," sold 2.2 million copies in just four days after launch, achieving an early hit.
In addition, the movie "Super Mario Galaxy," which uses the Super Mario intellectual property (IP), ranked No. 1 at this year's global box office, with cumulative revenue topping $900 million.
Despite steady sales of key products, Nintendo's share price has fallen more than 52% from its peak of 14,795 yen in August last year to 7,020 yen that day. Prices of DRAM and solid-state drives (SSD), core components in game consoles, have surged recently, fueling concerns about profitability. According to market researcher Counterpoint Research, DRAM prices in the first quarter of this year rose more than 50% from the previous quarter, and NAND flash rose more than 90%.
Nintendo projected that, due to the effects of chipflation, net profit will decline 27% year over year through March next year on a fiscal year basis. On the conservative outlook, Nintendo shares closed down 8.4% from the previous day.
Rival Sony earlier raised the domestic price of the PlayStation 5 (PS5) this month by 26.7%, from 748,000 won to 948,000 won. Console prices have jumped to near 1 million won. Sony likewise decided to raise prices to address pressure from higher component costs. The PS5 is known to have a higher share of high-spec components than Nintendo consoles, leading to a larger increase.
The pressure to raise console prices is expected to persist for the time being. Investment bank Bernstein said, "Rising memory prices will hit the entire console market, whether 'Switch,' 'PlayStation' or 'Xbox,'" adding, "It will take time for memory supply to catch up with demand, and console makers will have no choice but to find ways to offset the burden."
Industry officials worry that as prices rise from consoles to peripherals and subscription services, new user inflows will slow and the game market could contract. In particular, many of Nintendo's core users are price-sensitive casual gamers, so price hikes could directly affect console sales volumes. In addition, AAA blockbuster games and console hardware sales grow in tandem, and if new user inflows decline, the performance of new games is also expected to suffer.
Piers Harding-Rolls, an analyst at market research firm Ampere Analysis, said, "The console and AAA game markets rely on hardware investment to maintain growth momentum, and if device demand weakens, demand for new games may also slow," adding, "It's an unwelcome situation for Sony and MS as they look ahead to the release of this year's anticipated 'GTA 6.'"