Nintendo earnings well short of expectations

Operating profit for the three months through June was ¥27.4 billion (Dh926.2m), versus the ¥40bn average of 10 analyst estimates

A Super Mario figure is displayed at a showroom in Tokyo, Tuesday, July 30, 2019. Japanese video game maker Nintendo Co. has reported fiscal first quarter profit dipped to about half of what it was the previous year despite improved sales as an unfavorable exchange rate eroded earnings. (AP Photo/Koji Sasahara)
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Japanese gaming company Nintendo on Tuesday reported a 10 per cent decline in quarterly profit, far short of market expectations, as a rise in costs dulled stronger sales of its hybrid home/portable Switch console.

Operating profit for the three months through June was ¥27.4 billion (Dh926.2m), versus the ¥40bn average of 10 analyst estimates compiled by Refinitiv.

The Kyoto-based gaming company said it sold 2.1 million Switch consoles in the quarter, bringing the total installed base to 36.9 million units. It maintained its full-year sales forecast of 18 million units for the year ending March.

Looking to offset declining sales of its ageing 3DS handheld console and expand beyond its core fan base, Nintendo will in September launch the Switch Lite device, which cuts unit costs by dropping the Switch's TV dock and detachable controllers.

The Switch Lite will retail in the United States at $199.99, compared with the Switch's price of $299.99. Nintendo did not provide a sales forecast for the new device.

The launch comes as the famously secretive company shows signs of greater openness, tying up with mobile game developers for smartphone-based titles like Mario Kart Tour, which is due to be released this summer in partnership with DeNA.

While some analysts said that could prove a breakthrough hit, early download numbers for Nintendo's most recent mobile title Dr Mario World, developed with Line Corp, have trailed earlier releases like Mario Run, data from Sensor Tower showed.

Nintendo's expansion plans also include a partnership with China's largest games maker, Tencent, that aims to sell the Switch in that country's stunted console market. The companies are set to exhibit at Shanghai's ChinaJoy gaming expo in early August.

Last week, Tencent said it would work with Nintendo-backed The Pokemon Company on a new game, in a partnership that could capitalise on the popularity of Japanese characters in China.

On the Switch, analysts are looking to the release of the device's first fully new Pokemon games – Pokemon Sword and Pokemon Shield – in November to further increase sales.

Nintendo's diversification drive comes as the global gaming market faces a shake-up as companies like Google parent Alphabet and Apple plan to launch game streaming services.

Many analysts nevertheless said games fans will continue to stick with traditional console manufacturers like Nintendo and Sony with their exclusive games featuring well-established characters.

Nintendo's shares closed up 0.7 per cent before the earnings announcement. Its share price has risen 39 per cent year to date.