Nintendo quarterly profit drops 10% ahead of Switch Lite launch

TOKYO (Reuters) - Japanese gaming company Nintendo Co Ltd on Tuesday reported a 10% decline in quarterly profit, far wide of market expectations, as a rise in costs dulled stronger sales of its hybrid home-portable Switch console.

An attendee tests out a new game on the Nintendo Switch during the opening day of E3, the annual video games expo revealing the latest in gaming software and hardware in Los Angeles, California, U.S., June 11, 2019. REUTERS/Mike Blake

Operating profit for the three months through June was 27.4 billion yen ($252.26 million), versus the 40 billion yen 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 aging 3DS handheld console and expand beyond its core fanbase, 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 Kyoto-based gaming 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 Co Ltd.

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 Holdings Ltd, that aims to sell the Switch in that country’s stunted console market. The two firms are set to exhibit at Shanghai’s ChinaJoy gaming expo in early August.

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

On the Switch, analysts are looking to the release of the device’s first full Pokemon games - Pokemon Sword and Pokemon Shield - in November to further push sales.

Nintendo’s diversification drive comes as the global gaming market faces a shake-up as entrants like Google parent Alphabet Inc and Apple Inc move into game streaming services.

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

Nintendo’s shares closed up 0.7% ahead of the earnings announcement. Its share price has risen 39% year-to-date.

Reporting by Sam Nussey; Editing by Christopher Cushing