Does the Sold-Out Switch Mean Nintendo Is Back in the Game?

By Daniel B. Kline Markets Fool.com

With the original Wii, back in 2006, Nintendo (NASDAQOTH: NTDOY) went against video game console logic. Instead of offering the most powerful processor, better graphics, and the best possible video resolution, the company focused on gameplay.

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Whereas Sony (NYSE: SNE) and Microsoft (NASDAQ: MSFT) were trying to outdo each other with their PS3 and Xbox 360, Nintendo tried something entirely different with Wii. It built a console around interactive family games. The Wii integrated motion into its controllers, allowing for things like tennis games where players swung a virtual racket.

It was a massive hit that made it seem like Nintendo could exist in a niche in the console market. It would not chase performance and high-end gamers like Sony and Microsoft. Instead it would build off the audience for its handheld gaming machines and its family friendly-properties including Super Mario Bros., Pokemon, and Legend of Zelda to serve a more casual, family audience.

It worked with the Wii, but the ambitious successor to that console, the Wii U, cast the entire strategy into doubt. The console badly underperformed, making it a distant third to Sony's and Microsoft's next gen PS4 and Xbox One consoles. Wii U failed so badly that there was much speculation Nintendo would exit the console market. That did not happen and instead the company went back to the drawing board and released its latest attempt to do something different, the Switch, a console that looks like it might repeat the success of Wii. It's "sold out." What does that tell us?

Nintendo's Switch is a new take on a video game console. Image source: Nintendo.

What is Switch?

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Nintendo's Switch actually built off some of the ideas in the Wii U. It's a hybrid console/portable gaming system with a removable screen. Plugged into your television it works like a traditional console, but if a user slides the two "Joy-con" controllers into the portable screen, it lifts off, allowing for seamless gameplay on the go.

Launch titles include a new Legend of Zelda as well as a number of movement-based games built for family play. The company has a Mario Kart title planned as well, along with many other familiar Nintendo names.

Is Switch a hit?

The new console was nearly impossible to find when it launched March 3. People lined up to buy the very limited stock some retailers had, and all major online retailers showed the console, which starts at $299 with bundles into the $500s, as being out of stock. That seemed like a good sign, but sometimes a lack of production can cause the appearance of heavy demand. Nintendo said that that's not the case here.

The company reportedly told New York Times reporter Nick Wingfield that Friday through Saturday sales were the best the company had ever had for any device, with the second-highest being the Wii. Wingfield also shared on Twitter that the new Zelda game for Switch was its fastest-selling stand-alone title ever.

Nintendo of America President Reggie Fils-Aime told The Seattle Times that the company expected to ship 2 million Switch consoles in March. "Our challenge now is meeting that consumer demand," Fils-Aime said.

Will early success mean a long-term hit?

These numbers are encouraging and there's clearly early demand for Switch, but there's also a lack of availability. Wii sold over 100 million units, but even the much-maligned Wii U sold 15 million, according to a report from SuperData Research. That shows that Nintendo has a base of fans that may inflate early demand for its products.

Nintendo is essentially trying to re-enter a market dominated by Sony and Microsoft. There are an estimated 55 million PS4s being used along with 26 million Xbox Ones. Switch is aiming to appeal to people who opted not to buy those consoles or who have them, but also want something more family-friendly.

The early numbers for the Switch suggest that Nintendo has recreated at least some of the magic it had with Wii. It's too soon to predict that the new device will hit those heights, but it does look like it will be a big enough hit to keep Nintendo in the console game.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Daniel Kline owns shares of Microsoft. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.