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Demand for Nintendo Co.'s profit-earning game software is under threat from soaring prices for data storage, clouding efforts to build a Switch 2 ecosystem that's resilient to tariffs and military conflict.
A global rush to build artificial intelligence hardware by the likes of Meta Platforms Inc. and Amazon.com Inc. is spurring big jumps in the price of NAND flash memory, used to store and access data for long-term use in gadgets as well as data centers. NAND contract prices are forecast to surge as much as 90% in the current quarter compared with the previous three-month period, when prices rose more than 30%, according to research firm TrendForce.
The additional cost is denting consumer appetite for new Switch 2 games. That's a problem for Nintendo, which needs to sell as many games as possible to make up for razor-thin margins on the consoles, which retail for around $450 and are already under pressure from US tariffs as well as a likely rise in shipping costs related to the conflict in the Middle East.
"I used to buy games on a whim, without paying attention to storage," said Shinsuke Hasegawa, an avid gamer in Tokyo with dozens of games for the Switch and its successor. "But I now need to make sure that games I buy are really ones I want to play because the space is filling up so quickly, at a pace that I didn't imagine."
Nintendo's storage problem is weighing on software demand, alongside factors such as game launch timings. Initial software sales momentum for the Switch 2, the world's fastest-selling console, lags behind the original Switch's. As of end-December, when Switch 2 sales hit 17.37 million units, the average number of games purchased per console came to 2.18, according to Bloomberg calculations based on company filings. When the original Switch reached a similar hardware sales milestone in March 2018, that figure stood at 3.88.
Users like Hasegawa were behind the original Switch's financial success. The 44-year-old's digital library is filled with titles he bought but never played, including some he forgot he owned. That casual approach was enabled by relatively small game file sizes and inexpensive low-end microSD cards.
Those premises no longer hold.
The Switch 2 is able to run higher-end games, and their file sizes are growing accordingly. Square Enix Holdings Co. will release its Final Fantasy VII Rebirth for the Switch 2 in June requiring an estimated 102.5 gigabytes — roughly 40% of the console's 256 gigabytes of internal storage.
That's as the cost to expand storage continues to climb, exacerbated by Nintendo's use of a new format with limited supply. Japanese storage-memory maker Nextorage Corp. now sells 256GB microSD Express cards that are compatible with the Switch 2 for ¥13,350 ($85), a 30% hike from when the console was released in June. Prices for comparable storage products are also rising in the US, where tariffs are adding to consumer costs.
To help lower costs for consumers, Nintendo sells its own-brand microSD Express cards supplied by Samsung Electronics Co. and Sandisk Corp. at roughly half the going market price. To do so, Nintendo has secured concessions from retailers such as Yodobashi Camera Co. and Bic Camera Inc. to give up some of the usually beefy profits they pocket on storage device sales, according to an official at a memory maker, who asked not to be identified discussing non-public information. As a theoretical example, a retailer who previously pocketed $50 of a $100 sale might now keep just $30. Representatives of Nintendo did not respond to a request for comment.
Besides consumer unhappiness about having to spend $50 plus — the cost of a new game — for MicroSD Express cards that can provide additional storage, the problem poses long-term risks for the company, said Pelham Smithers, managing director at Pelham Smithers Associates.
"If the Switch 2 gets a reputation for being just a vehicle for Nintendo games, then third parties may stop trying, which can start a domino effect in terms of consumer interest," he said.
Nintendo shares are down nearly 30% from their level on the eve of the Switch 2's launch.
Raising the price of the Switch 2 — already Nintendo's most expensive console — would ease some of the expected pressure on its margins. Nintendo will adjust hardware pricing as needed, President Shuntaro Furukawa has said, and the company has already raised prices on some Switch 2 peripherals, including controllers and cameras.
But memory makers are signaling still further increases ahead. NAND prices are spiking, while some customers are seeking to secure longterm contracts and offering payment upfront, according to executives at Kioxia Holdings Corp., which operates NAND manufacturing plants with partner Sandisk. Rivals Micron Technology Inc., Samsung and SK Hynix Inc. have all indicated they expect continued shortages for flash memory on earnings calls.
Nintendo's storage problem is compounded by the Game-Key cards that it encourages third-party publishers to adopt, and which prompts users to download full titles onto the console, quickly filling up storage. Backward compatibility with original Switch titles adds further pressure, with longtime users transferring their existing libraries to the new device instead of saving that space for new releases. Live-service games requiring regular updates further squeezes available storage.
Hasegawa has no plans to buy a larger microSD Express card to expand Switch 2 storage. Storage upgrades on his PlayStation 5 and PC cost about half as much, and Hasegawa is turning to those platforms if game titles are available there, reserving the Switch 2 for playing Nintendo's own titles — and even then, only after carefully checking their file sizes.
"If a new Mario game comes out and it takes up 100GB, I'm not sure I'd buy it," Hasegawa said.
bloomberg
A global rush to build artificial intelligence hardware by the likes of Meta Platforms Inc. and Amazon.com Inc. is spurring big jumps in the price of NAND flash memory, used to store and access data for long-term use in gadgets as well as data centers. NAND contract prices are forecast to surge as much as 90% in the current quarter compared with the previous three-month period, when prices rose more than 30%, according to research firm TrendForce.
The additional cost is denting consumer appetite for new Switch 2 games. That's a problem for Nintendo, which needs to sell as many games as possible to make up for razor-thin margins on the consoles, which retail for around $450 and are already under pressure from US tariffs as well as a likely rise in shipping costs related to the conflict in the Middle East.
"I used to buy games on a whim, without paying attention to storage," said Shinsuke Hasegawa, an avid gamer in Tokyo with dozens of games for the Switch and its successor. "But I now need to make sure that games I buy are really ones I want to play because the space is filling up so quickly, at a pace that I didn't imagine."
Nintendo's storage problem is weighing on software demand, alongside factors such as game launch timings. Initial software sales momentum for the Switch 2, the world's fastest-selling console, lags behind the original Switch's. As of end-December, when Switch 2 sales hit 17.37 million units, the average number of games purchased per console came to 2.18, according to Bloomberg calculations based on company filings. When the original Switch reached a similar hardware sales milestone in March 2018, that figure stood at 3.88.
Users like Hasegawa were behind the original Switch's financial success. The 44-year-old's digital library is filled with titles he bought but never played, including some he forgot he owned. That casual approach was enabled by relatively small game file sizes and inexpensive low-end microSD cards.
Those premises no longer hold.
The Switch 2 is able to run higher-end games, and their file sizes are growing accordingly. Square Enix Holdings Co. will release its Final Fantasy VII Rebirth for the Switch 2 in June requiring an estimated 102.5 gigabytes — roughly 40% of the console's 256 gigabytes of internal storage.
That's as the cost to expand storage continues to climb, exacerbated by Nintendo's use of a new format with limited supply. Japanese storage-memory maker Nextorage Corp. now sells 256GB microSD Express cards that are compatible with the Switch 2 for ¥13,350 ($85), a 30% hike from when the console was released in June. Prices for comparable storage products are also rising in the US, where tariffs are adding to consumer costs.
To help lower costs for consumers, Nintendo sells its own-brand microSD Express cards supplied by Samsung Electronics Co. and Sandisk Corp. at roughly half the going market price. To do so, Nintendo has secured concessions from retailers such as Yodobashi Camera Co. and Bic Camera Inc. to give up some of the usually beefy profits they pocket on storage device sales, according to an official at a memory maker, who asked not to be identified discussing non-public information. As a theoretical example, a retailer who previously pocketed $50 of a $100 sale might now keep just $30. Representatives of Nintendo did not respond to a request for comment.
Besides consumer unhappiness about having to spend $50 plus — the cost of a new game — for MicroSD Express cards that can provide additional storage, the problem poses long-term risks for the company, said Pelham Smithers, managing director at Pelham Smithers Associates.
"If the Switch 2 gets a reputation for being just a vehicle for Nintendo games, then third parties may stop trying, which can start a domino effect in terms of consumer interest," he said.
Nintendo shares are down nearly 30% from their level on the eve of the Switch 2's launch.
Raising the price of the Switch 2 — already Nintendo's most expensive console — would ease some of the expected pressure on its margins. Nintendo will adjust hardware pricing as needed, President Shuntaro Furukawa has said, and the company has already raised prices on some Switch 2 peripherals, including controllers and cameras.
But memory makers are signaling still further increases ahead. NAND prices are spiking, while some customers are seeking to secure longterm contracts and offering payment upfront, according to executives at Kioxia Holdings Corp., which operates NAND manufacturing plants with partner Sandisk. Rivals Micron Technology Inc., Samsung and SK Hynix Inc. have all indicated they expect continued shortages for flash memory on earnings calls.
Nintendo's storage problem is compounded by the Game-Key cards that it encourages third-party publishers to adopt, and which prompts users to download full titles onto the console, quickly filling up storage. Backward compatibility with original Switch titles adds further pressure, with longtime users transferring their existing libraries to the new device instead of saving that space for new releases. Live-service games requiring regular updates further squeezes available storage.
Hasegawa has no plans to buy a larger microSD Express card to expand Switch 2 storage. Storage upgrades on his PlayStation 5 and PC cost about half as much, and Hasegawa is turning to those platforms if game titles are available there, reserving the Switch 2 for playing Nintendo's own titles — and even then, only after carefully checking their file sizes.
"If a new Mario game comes out and it takes up 100GB, I'm not sure I'd buy it," Hasegawa said.
bloomberg
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