Nintendo Fights Parts Shortage for Switch -- WSJ

By Takashi Mochizuki Features Dow Jones Newswires

Nintendo Co.'s biggest battle these days isn't against other game makers. It is against companies such as Apple Inc. that are gobbling up the same parts Nintendo needs to make its hit Switch machine, people in the industry say.

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Nintendo has told suppliers and assemblers it hopes to make nearly 20 million units of the Switch device in the year ending in March 2018, people involved in the discussions said. Though the company's official sales target for the year is 10 million, strong demand suggests it can sell many more -- if it can make them.

The problem is an industrywide capacity shortage for components used in smartphones, computer servers and other digital devices. These include the NAND flash-memory chips that store data, as well as liquid-crystal displays and the tiny motors that enable the Switch's hand-held controllers to imitate the feel of an ice cube shaking in a glass.

"Demand for our NAND flash memory has been overwhelmingly greater than supply, and the situation is likely to stay for the rest of this year," said a spokeswoman at Toshiba Corp., the industrial giant that is leaning on flash memory to survive. She cited demand from smartphone makers -- Apple and Chinese companies are among Toshiba's customers -- and data centers.

People in the industry say the rapid expansion of web-based services for corporations has driven demand for computer servers that use flash memory. Continued demand for Apple's iPhone 7 and a 10th anniversary model of the iPhone expected later this year are also keeping parts makers at full capacity, helping power Japan's economy to its longest growth streak since 2006.

Nintendo and Apple representatives declined to comment on supply-chain issues.

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Nintendo's component struggles suggest the Switch, a hybrid device designed for use both in the living room and on the go, is likely to remain hard to find for consumers throughout this year.

Analysts say rivals for the sought-after parts can often offer better terms than Nintendo. Makers of data-center servers tend to use newer and higher-margin components, while smartphone makers issue larger orders than Nintendo.

If Nintendo increased spending significantly to secure more parts, that could risk driving the Switch's production cost above the $299 retail price. President Tatsumi Kimishima, has said he doesn't want to sell the Switch at a loss.

Nintendo has already taken one expensive step to ensure early sales momentum for the Switch by using air cargo to deliver some units to the U.S. and Europe in March.

Normally, Nintendo could use the late summer months to deliver extra supplies to the U.S. by ship in preparation for the holiday season, but that is more difficult now and Nintendo might again consider air cargo toward the end of the year, people briefed on its thinking said.

In April, Nintendo said the Switch, which went on sale globally March 3, sold 2.74 million units in March.

The company was burned by the poor performance of the Switch's predecessor, the Wii U machine, which had lifetime sales of fewer than 14 million units, but the recent good news has driven Nintendo's share price to an eight-year high.

Some families are buying multiple units, treating them more like smartphones than living-room consoles because of the Switch's portability.

Yukiko Amakawa, a 36-year-old homemaker in Fukuoka, Japan, said her family of four owns three Switches: one for herself; one for her husband to play on the train while commuting; and a third for their children, a 6-year-old boy and 3-year-old girl.

"I don't want anyone touching my playing data," she said. "While my kids play Mario Kart on TV, I play some other games on the Switch's portable screen."

Hirokazu Hamamura, a director at Kadokawa Dwango Corp., publisher of the videogame magazine Famitsu, said momentum was likely to pick up as outside software publishers add games to the Switch's lineup. Capcom Co. of Japan plans to release a "Monster Hunter" title for the Switch.

Write to Takashi Mochizuki at takashi.mochizuki@wsj.com

(END) Dow Jones Newswires

May 31, 2017 02:47 ET (06:47 GMT)