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Apr 26, 2018

Nintendo's Switch puts profits back on course to Wii-era levels

Nintendo Switch

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Shuntaro Furukawa grew up playing the Family Computer, eventually realizing every teenager’s dream of joining the company that made the genre-defining console. Now, as the next president of Nintendo Co. (NTDOY.PK), he has the chance to build a new franchise atop a hit product, the Switch.

It’s a big generational shift. At 46, Furukawa is 22 years younger than outgoing President Tatsumi Kimishima, a former banker who oversaw the new hybrid console’s debut last year. The Nintendo Switch, which can be used as a portable gaming machine or docked to a TV, is the Kyoto-based company’s biggest bet in years. The company exceeded its own goals by selling 15.1 million units in the period, and forecasts 20 million shipments in the current year to March 2019. Nintendo announced the management changes alongside earnings results Thursday.

Furukawa joined Nintendo in 1994, worked in global marketing and served on the board of partly owned Pokemon Co. He takes over as the strong results and outlook underscore Nintendo’s confidence that it has worked out the Switch’s first-year production kinks. The next step is attracting buyers from beyond the console’s core base. While the company had a strong lineup of games last year to drive hardware sales, it only has one new big-name title — Super Smash Bros. — scheduled for release this year.

“The key thing here is that management is getting younger,” said Satoshi Kurihara, an analyst at Tokai Tokyo Research Institute. “They will have to execute the Switch’s growth plan, so in that sense this is a new start.”

This isn’t the first time that a younger generation took over at Nintendo. Satoru Iwata, who introduced the blockbuster Wii, became president in 2002 when he was 42 and ran the company until his death three years ago. Along with Furukawa’s appointment, three younger executives will also replace retiring senior managers. Among the new appointees is Yoshiaki Koizumi, a key architect of the Switch, and Takashi Tezuka, who was tasked with modernizing Super Mario.

At a news conference in Osaka, Furukawa promised to bring out Nintendo’s full potential. He grew up playing with the Family Computer, or Famicom, which was sold in Japan during the 1980s. The device, which popularized the gaming console for the masses, was sold as the Nintendo Entertainment System in the U.S. and other places. “We will develop the company to its fullest,” he said. “I will balance Nintendo’s traditions: originality and flexibility.”

A graduate of Waseda University, Furukawa worked for about 10 years in Germany, according to the Nikkei newspaper. While he spent much of his tenure at the company’s accounting office, rising to head Nintendo’s corporate planning division in 2015, Furukawa has also contributed to software development and was involved in the making of the Switch. He’ll be formally appointed in June.

“Furukawa comes across as thoughtful, very knowledgeable and quite well informed,” said Atul Goyal, an analyst at Jefferies Group, who has met him several times in person. “He is fluent in English. He may be the perfect person to fill the communication gap that exists between Nintendo and investors.”

Last year’s numerous blockbuster hits include games such as Zelda, Super Mario, Mario Kart and Splatoon 2. That raises the stakes for products like Nintendo Labo, cardboard accessories that the company sees as key to broadening the Switch’s appeal beyond initial adopters.

“No other console in recent history offered such an array of blockbusters in the first 12 months after launch,” Serkan Toto, founder of Tokyo-based games consultancy Kantan Games Inc. “But the Switch absolutely needs more mega hit games in 2018.”

Nintendo also released earnings results on Thursday. For the fiscal year through next March, Nintendo forecast profit of 225 billion yen (US$2.1 billion). While that would be the most in eight years, it was below analysts’ average estimate for 308.6 billion yen. Nintendo typically posts conservative guidance, and this is no exception.

Here are some other key figures disclosed by Nintendo:

  • Operating profit was 21.1 billion yen in the latest quarter, compared with analysts’ average projection for 20.2 billion yen.
  • Nintendo forecast 20 million Switch shipments for the year, up from 15.1 million in the prior period.
  • Switch software titles totaled 63.5 million in the latest year, exceeding the company’s forecast for 53 million. Nintendo expects to sell 100 million in the coming year.
  • As of the end of March, Switch owners had on average bought 3.9 titles per console, a figure Nintendo estimates will rise to 4.5 in a year.
  • Annual revenue from smartphone games rose 62 percent to 39.3 billion yen. Income primarily attributed to Pokemon Go fell to 10.3 billion yen from 20.3 billion yen a year ago.

Asked about his approach to management at a company that spawned Super Mario Bros., Zelda and other iconic games, Furukawa indicated that he’s ready to challenge the status quo to take Nintendo forward.

“I grew up playing the Famicom and come from that generation,” Furukawa said. “Now as a member of management with Super Mario’s creator Shigeru Miyamoto, I have a lot of respect for him. On the other hand, with this new job that can’t just be it, so I expect to say what needs to be said to run the company.”