Nintendo Switch 2 Sales Plunge Amid Memory Crisis; Bernstein Calls It "Not A Good Result"

Nintendo Switch 2 sales came in materially below Wall Street expectations. Second quarter earnings showed a 41% decline in sales as price increases, shortages, and the memory crisis weighed on demandThe Kyoto-based gaming company sold 2.67 million consoles in the three months ended Sept. 30, down from 3.82 million in the previous quarter. Nintendo hiked prices in the US, Canada, and Japan as a global memory chip shortage drove up component costs. Revenue for the quarter totaled $2.8 billion, below the $3.04 billion average analyst estimate compiled by LSEG. Net income of $464.4 million missed expectations of $519.2 millionMorningstar equity director Kazunori Ito wrote earlier, "The slowdown has arrived earlier than anticipated," adding, "It's clear that investors have cooled on the Switch 2 platform."Nintendo maintained its forecast of 16.5 million Switch 2 consoles for the fiscal year ending March 2027. Kantan Games CEO Serkan Toto told CNBC that Nintendo needs more blockbuster games to sustain momentum and win over consumers. This comes as Grand Theft Auto VI is set to debut in the coming weeks.Bernstein gaming analyst Robin Zhu offered his first take on the earnings:Nintendo Q2: The memory hit landsA whiff mostly on hardware margins. Nintendo's Q2 results came in materially below street expectations. Revenue (JPY448bn) fell 15.0% year on year against comps from immediately after the Switch 2 launch, but was in-line with our estimate and consensus. JPY73.9bn of operating profit meanwhile was lower than both our modeling (JPY92.4bn) and street consensus (JPY88.1bn). 2.68mn of Switch 2 hardware units sold in Q2 compared with us and the street on c. 3mn units. 47.0mn software units meanwhile was close to our modelling on c. 47.3mn units, with mix tilted slightly more in favour of Switch 27% hardware gross margins? In a way, we'd argue that a miss driven by memory cost headwinds is somehow… less bad than (as some Nintendo bears had argued for) if software units or revenues had disappointed. Hardware ARPU as reported came to JPY68.1k/$430 in Q2, compared with the JPY65.5k/$415 we'd modelled. JPY195bn of software revenue was slightly short versus our JPY200bn estimate, though blended billings per unit (grossing third-party games up to a 100% basis) of JPY6,300/$40 was actually a little higher than the JPY5,500/$35 we'd modelled. Sales of first-party titles like Rhythm Heaven Groove and Fire Emblem Fortune's Weave fell slightly short versus our prior estimates, but third party was able to offsetNot a good result, but… Nintendo's shares fell c. 7% after hours, which feels… reasonable. Qualitative expectations into the quarter were muted for the most part, and our sense is most investors have turned their attention to how many million units Ocarina of Time Remake sells in the coming weeks, and whether Mario joins the line-up this time next year. Both the 1998 Ocarina of Time and 2011 3DS remake saw c. 20% attach rates at launch, but we'd argue the real significance of the 2026 Remake is that it gives the Switch 2 a first (or second, if one includes Mario Kart World, bundled at launch) must-play game which should sell millions beyond the first year. The latter remains a waiting game, though Nintendo has sounded more constructive on tent-pole releases of lateNintendo shares in Tokyo have been halved since late 2025 as rising chip costs have pressured hardware margins and forced Switch 2 price increases. The following sales slowdown suggests that some consumers may be at the upper limits of what they're willing to pay not just for the handheld console but games too. An overlay of "memory shortage" headlines tracked through Bloomberg's NT function and Nintendo's share price shows the stock's bear market coinciding with increased coverage of the shortage. Unless Democrats pop the AI bubble with nationwide moratoriums, the memory shortage will linger well into next year.