As the global memory shortage deepens, prices of console game machines are rising across the board. Nintendo recently said it will raise prices of its consoles, the "Switch" and "Switch 2," by more than 12%. With so-called "chipflation (memory + inflation)" driven by increased demand for artificial intelligence (AI) semiconductors squeezing profitability and dragging down the share price, the company ultimately decided to adjust device prices, analysts said.
If the memory shortage is prolonged, some project that Microsoft (MS) Xbox will join Sony and Nintendo in raising prices. If higher device prices dampen console sales, domestic and overseas game companies looking to rebound with new PC and console titles could face a chain blow, observers said. In the actual market, concerns are growing that there are not enough compelling new releases to offset higher console prices, and Nintendo's stock plunged nearly 10% intraday on the Tokyo exchange on the 11th.
According to the game industry that day, Nintendo will raise prices for the Switch lineup starting on the 25th of this month. In Korea, the price of the base "Switch" model will rise 13.89% to 410,000 won from 360,000 won, and the Nintendo Switch OLED model will increase about 12% to 465,000 won from 415,000 won.
The price of the newest model, "Switch 2," is set to go up starting in September. The specific increase will be announced later, but considering that the "Switch 2" price will rise 20% in Japan and be adjusted to $499.99 in the United States, up 11%, it is expected to climb at least 10%.
Although Nintendo posted strong results last year on the back of steady sales of major games and devices, it is seen as pulling the price-hike lever to address cost pressures from the memory shortage and the resulting sluggish share price. Nintendo's revenue last year was about 2.313 trillion yen (about 2.168 trillion won), nearly double from a year earlier, and operating profit rose 27.5% over the same period to 360.1 billion yen.
Cumulative sales of the "Switch 2," launched in June last year, reached 19.86 million units, driving results. The success of related games also contributed to console sales, according to assessments. "Mario Kart World" sold 14.7 million copies, "Donkey Kong Bananza" sold 4.52 million, and the exclusive "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 film "Super Mario Galaxy," which uses the Super Mario intellectual property (IP), ranked No. 1 at the global box office this year, with cumulative revenue topping $900 million.
Despite steady sales of key products, Nintendo's share price has fallen more than 52% from its peak (14,795 yen) in Aug. last year to that day (7,020 yen). Prices of DRAM and solid-state drives (SSD), core components in game machines, have jumped recently, stoking concerns about profitability. According to market research firm 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 net profit for the fiscal year through Mar. next year will fall 27% from a year earlier due to the impact of chipflation. On the conservative outlook, Nintendo shares also 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% to 948,000 won from 748,000 won. The console price has jumped to near 1 million won. Sony likewise decided to raise prices to address pressure from rising parts costs. The PS5 uses a higher proportion of high-spec components than Nintendo's consoles, resulting in a larger price increase.
Some expect pressure to raise console prices to continue for the time being. Investment bank Bernstein said, "Rising memory prices will hit the entire console market, regardless of 'Switch,' 'PlayStation' or 'Xbox,'" and added, "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 this burden."
The industry worries that successive price hikes from consoles to peripherals and subscription services could slow new user inflows and shrink the gaming market. In particular, many of Nintendo's core users are price-sensitive casual gamers, so price increases could directly affect console sales. Moreover, AAA blockbusters and console hardware sales grow together, and if new user inflows slow, the performance of new games could also take a hit, analysts said.
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 can also slow," adding, "It is an unwelcome situation for Sony and MS ahead of the release of this year's anticipated 'GTA 6.'"